4)Johnson & Johnson and Walgreen Company have a correlation of 16% and expectedreturns and standard deviations as shown below.E(r)Johnson & Johnson8%17%Walgreen Company11%21%a) Calculate the expected return and volatility of a portfolio- that is equally invested in the two stocksthat consists of a long position of $12,000 in Johnson & Johnson and a shortpositionof $4,000 in Walgreen.b) Calculate the expected return and volatility of a portfolio of Johnson & Johnson andWalgreen using a wide range of portfolio weights. Plot the expected return as a functionof the portfolio volatility. Using your graph, identify the range of portfolio weights thatyield efficient combinations of the two stocks rounded to the nearest percentage point.

Since there are several questions we will solve the first one. Please repost the others separately.…

4) Johnson & Johnson and Walgreen Company have a correlation of 16% and expecte returns and standard deviations as shown below. E(r) σ Johnson & Johnson 8% 17% Walgreen Company 11% 21% a) Calculate the expected return and volatility of a portfolio that is equally invested in the two stocks that consists of a long position of $12,000 in Johnson & Johnson and a sho position

4) Johnson & Johnson and Walgreen Company have a correlation of 16% and expecte returns and standard deviations as shown below. E(r) σ Johnson & Johnson 8% 17% Walgreen Company 11% 21% a) Calculate the expected return and volatility of a portfolio that is equally invested in the two stocks that consists of a long position of $12,000 in Johnson & Johnson and a sho position

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The expected return and standard deviation of a portfolio that is 50 percent invested in 3 Doors, Incorporated, and 50 percent invested in Down Company. are the following: Expected return, E(R) Standard deviation, o 3 Doors, Incorporated 14% 42 Correlation +1 Correlation 0 Correlation-1 What is the standard deviation if the correlation is +1? 0? -1? Note: Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places. Standard Deviation 33.61 % Down Company 10% 31 %
Using the data in the following table, and the fact that the correlation of A and B is 0.48, calculate the volatility (standard deviation) of a portfolio that is 70% invested in stock A and 30% invested in stock B. (Click on the following icon in order to copy its contents into a spreadsheet.) Year 2008 2009 2010 2011 2012 2013 Realized Returns Stock A - 10% 20% 5% - 5% 2% 9% Stock B 21% 30% 7% - 3% - 8% 25% The standard deviation of the portfolio is %. (Round to two decimal places.)
The expected return and standard deviation of a portfolio that is 60 percent invested in 3 Doors, Incorporated, and 40 percent invested in Down Company are the following: Expected return, E(R) Standard deviation, o 3 Doors, Down Incorporated Company 10% 33 Correlation +1 Correlation 0 Correlation-1 What is the standard deviation if the correlation is +1? 0? -1? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. 11% 44 Standard Deviation % % %
Suppose you are given the following information about 2 stocks, what is the return standard deviation of a portfolio weighted 55% in stock A and 45% in stock B? E(RA)=16% E(RB)=8% σA=22% σB=12% σA,B=−0.003696 Enter rate in decimal form, rounded to 4th digit, as in "0.1234"
Suppose that the average stock has a volatility of 49%, and that the correlation between pairs of stocks is 19%. Estimate the volatility of an equally weighted portfolio with: a. 1 stock b. 30 stocks c. 1,000 stocks a. The volatility of an equally weighted portfolio with 1 stock is 49 %. (Round to two decimal places.) b. The volatility of an equally weighted portfolio with 30 stocks is%. (Round to two decimal places.)
Consider the following expected returns, volatilities, and correlations: Stock Duke Energy Microsoft Wal-Mart Expected Standard Correlation with Correlation with Correlation with Return Duke Energy Deviation 14% 6% 44% 24% 23% 14% 1.0 -1.0 0.0 Microsoft -1.0 1.0 0.7 Wal-Mart 0.0 0.7 1.0 a) Consider a portfolio consisting of only Duke Energy and Microsoft. What is the percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment. b) What are the expected return and volatility of a portfolio that consists of a long position of $10,000 in Wal-Mart and a short position of $2000 in Microsoft? c) What are the expected return and platility of a portfolio that has $3000 invested in Duke Energy, $4000 invested in Microsoft, and $3000 invested in Walmart stock?
What is the expected rate of return on R. Halsey Inc. stock if it has a correlation coefficient equal to 0.48 with the market portfolio and a standard deviation of 0.25? The risk free rate is 3% and the return on the market is 12%. Assume CAPM holds and the risk free and market combined portfolio has a standard deviation of 14% and an expected return of 8 %
Suppose Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown below, with a correlation of 22.2%. Johnson & Johnson Walgreen Company E [R] 7.2% 9.3% SD [R] 16.8% 20.4% For a portfolio that is equally invested in Johnson & Johnson's and Walgreen's stock, calculate: a. The expected return. b. The volatility (standard deviation). a. The expected return. The expected return of the portfolio is ☐ %. (Round to one decimal place.) b. The volatility (standard deviation). The volatility of the portfolio is %. (Round to one decimal place.)
Suppose that the average stock has a volatility of 58%, and that the correlation between pairs of stocks is 18%. Estimate the volatility of an equally weighted portfolio with: a. 1 stock b. 30 stocks c. 1,000 stocks
* A nces The expected return on Big Time Toys is 12% and its standard deviation is 21.6%. The expected return on Chemical Industries is 9% and its standard deviation is 27.4%. a. Suppose the correlation coefficient for the two stocks' returns is 0.28. What are the expected return and standard deviation of a portfolio with 53% invested in Big Time Toys and the rest in Chemical Industries? (Round your answers to 2 decimal places.) Portfolio's expected return Portfolio's standard deviation b. If the correlation coefficient is 0.78, recalculate the portfolio expected return and standard deviation, assuming the portfolio weights are unchanged. (Round your answers to 2 decimal places.) Portfolio's expected return Portfolio's standard deviation c. Why is there a slight difference between the results, when the correlation coefficient was 0.28 and when it was 0.78? The higher the correlation is between the two variables, the less the potential is for diversification. V
Here are some historical data on the risk characteristics of Ford and Harley Davidson. Ford Harley Davidson β (beta) 1.26 0.69 Yearly standard deviation of return (%) 30.9 16.9 Assume the standard deviation of the return on the market was 12.0%. a. The correlation coefficient of Ford’s return versus Harley Davidson is 0.27. What is the standard deviation of a portfolio invested half in each share? b. What is the standard deviation of a portfolio invested one-third in Ford, one-third in Harley Davidson, and one-third in risk-free Treasury bills? c. What is the standard deviation if the portfolio is split evenly between Ford and Harley Davidson and is financed at 50% margin, that is, the investor puts up only 50% of the total amount and borrows the balance from the broker? d-1. What is the approximate standard deviation of a portfolio composed of 100 stocks with betas of 1.26 like Ford? d-2. What is the approximate standard deviation of a portfolio composed of…
The data on the expected return of 2 stocks (M and C) along with the economic conditions and their probabilities is attached below Questions : Calculate the expected return for asset M and asset C. Calculate the standard deviation for asset M and asset C. c) If asset M is a market portfolio, while the beta (β) for asset C is 1.25 and the risk-free asset is 6%. What is the required rate of return for asset C according to the CAPM method ?. .

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