Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here,, with a correlation of 20%. Assume the portfolio is equally invested in these two stocks. If the correlation between Johnson & Johnson's and Walgreens' stock were to increase, a. Would the expected return of the portfolio rise or fall? b. Would the volatility of the portfolio rise or fall?
Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here,, with a correlation of 20%. Assume the portfolio is equally invested in these two stocks. If the correlation between Johnson & Johnson's and Walgreens' stock were to increase, a. Would the expected return of the portfolio rise or fall? b. Would the volatility of the portfolio rise or fall?
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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Question
Q10
Transcribed Image Text:Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here,, with a correlation of 20%. Assume the portfolio is equally invested in these two stocks. If the
correlation between Johnson & Johnson's and Walgreens' stock were to increase,
a. Would the expected return of the portfolio rise or fall?
b. Would the volatility of the portfolio rise or fall?
a. Would the expected return of the portfolio rise or fall? (Select the best choice below.)
O A. Remain the same.
B.
Rise.
O C. Fall.
O D. Cannot tell from the information provided.
b. Would the volatility of the portfolio rise or fall? (Select the best choice below.)
O A. Rise.
B. Fall.
OC. Remain the same.
O D. Cannot tell from the information provided.
Data table
(Click on the following icon in order to copy its contents into a spreadsheet.)
Expected Return
7.6%
10.9%
Johnson & Johnson
Walgreens Boots Alliance
Print
Done
Standard Deviation
17.5%
18.1%
-
X
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