Suppose Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown below, with a correlation of 21.4%. E [R] SD [R] Johnson & Johnson 6.8% 15.2% Walgreen Company 10.5% 19.8% 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 Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown below, with a correlation of 21.4%. E [R] SD [R] Johnson & Johnson 6.8% 15.2% Walgreen Company 10.5% 19.8% 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.)

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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Concept explainers

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.

Question

100%

Suppose Johnson & Johnson and the Walgreen Company have the expected returns and volatilities shown below, with a correlation of 21.4%.
E [R]
SD [R]
Johnson & Johnson
6.8%
15.2%
Walgreen Company
10.5%
19.8%
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.)

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