Question
In: Finance
Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here, check...
Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here, check the table below, with a correlation of 15%.
Calculate the expected return and the volatility (standard deviation) of a portfolio consisting of Johnson & Johnson's and Walgreens' stocks using a wide range of portfolio weights. Plot the expected portfolio return as a function of the portfolio volatility. Using your graph, identify the range of Johnson & Johnson's portfolio weights that yield efficient combinations of the two stocks.
|
|
Standard Deviation |
|||
|
Johnson & Johnson |
13% |
16% |
||
|
Walgreens Boots Alliance |
12% |
11% |
||
Find the expected return and volatility of the portfolio consisting
of 20% of Johnson & Johnson's stock and
80% of Walgreens' stock.
The expected return of the portfolio is ………….%. (Round to one decimal place.)
The volatility (standard deviation) of the portfolio is …………%. (Round to one decimal place.)
Find the expected return and volatility of the portfolio consisting of 30% of Johnson & Johnson's stock and 70% of Walgreens' stock.
The expected return of the portfolio is ………….%. (Round to one decimal place.)
The volatility (standard deviation) of the portfolio is ………%. (Round to one decimal place.)
Find the expected return and volatility of the portfolio consisting of 40% of Johnson & Johnson's stock and 60% of Walgreens' stock.
The expected return of the portfolio is ……..%. (Round to one decimal place.)
The volatility (standard deviation) of the portfolio is ………..%. (Round to one decimal place.)
Plot the expected portfolio return as a function of the portfolio volatility.
Solutions
Expert Solution
Answer (a):
When portfolio consist of 20% of Johnson & Johnson's stock and 80% of Walgreens' stock.
The expected return of the portfolio is 12.2%.
The volatility (standard deviation) of the portfolio is 9.8 %.
Working are given at the end.
Answer (b):
When portfolio consist of 30% of Johnson & Johnson's stock and 70% of Walgreens' stock.
The expected return of the portfolio is 12.3%.
The volatility (standard deviation) of the portfolio is 9.7 %.
Working are given at the end.
Answer (c):
When portfolio consist of 40% of Johnson & Johnson's stock and 60% of Walgreens' stock.
The expected return of the portfolio is 12.4%.
The volatility (standard deviation) of the portfolio is 9.9%.
Working are given at the end.
Answer (d):
Plot of the expected portfolio return as a function of the portfolio volatility
Workings:
Above excel with 'show formula' is as follows:
jeff jeffy answered 1 year agoRelated Solutions
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