The expected return. Introduction: Expected return refers to a return that the investors expect on a risky investment in the future.

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Chapter 11, Problem 23P

a)

Summary Introduction

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

b)

Summary Introduction

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

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Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here, with a correlation of 20%. Calculate a. the expected return and b. the volatility(standard deviation) of a portfolio that consists of a long position of $12,000 in Johnson & Johnson and a short position of $2,000 in Walgreens. Expected Return Standard Deviation Johnson & Johnson 7.7% 16.5% Walgreens 9.4% 19.2%

Suppose Johnson & Johnson and the Walgreen Company have expected returns and volatilities shown below, with a correlation of 22%. Calculate the expected return of a portfolio that is equally invested in J&J and Walgreen’s stock. Calculate the volatility (standard deviation) of a portfolio that is equally invested in Johnson & Johnson’s and Walgreen’s stock.

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…

Answer 2

Question

Chapter 11, Problem 23P

a)

Summary Introduction

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

b)

Summary Introduction

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

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Answer 3

Question

Chapter 11, Problem 23P

a)

Summary Introduction

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

b)

Summary Introduction

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Expert Solution & Answer

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Answer 4

Question

Chapter 11, Problem 23P

a)

Summary Introduction

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

b)

Summary Introduction

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Expert Solution & Answer

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Answer 5

Chapter 11, Problem 23P

a)

Summary Introduction

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

b)

Summary Introduction

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Answer 6

Chapter 11, Problem 23P

a)

Summary Introduction

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

Answer 7

Chapter 11, Problem 23P

a)

Summary Introduction

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

Answer 8

b)

Summary Introduction

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Answer 9

b)

Summary Introduction

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Answer 10

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Answer 11

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Answer 12

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Answer 13

Ch. 11.1 - What is a portfolio weight?Ch. 11.1 - How do we calculate the return on a portfolio?Ch. 11.2 - What does the correlation measure?Ch. 11.2 - How does the correlation between the stocks in a...Ch. 11.3 - Prob. 1CC Ch. 11.3 - Prob. 2CC Ch. 11.4 - Prob. 1CC Ch. 11.4 - Prob. 2CC Ch. 11.4 - Prob. 3CC Ch. 11.5 - What do we know about the Sharpe ratio of the...

The expected return. Introduction: Expected return refers to a return that the investors expect on a risky investment in the future.

Solution Summary: The author explains the expected return of JJ Company's stock is 7 percent, and W Company’s is 10 percent.

Concept explainers

Videos

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.

Want to see the full answer?

Chapter 11 Solutions

The expected return. Introduction: Expected return refers to a return that the investors expect on a risky investment in the future.

Solution Summary: The author explains the expected return of JJ Company's stock is 7 percent, and W Company’s is 10 percent.

Concept explainers

Videos

To determine: The expected return. Introduction: Expected return refers to a return that the investors expect on a risky investment in the future.

To determine: The volatility of the portfolio. Introduction: Standard deviation refers to the deviation of the actual returns from the expected returns.

Want to see the full answer?

Chapter 11 Solutions

To determine: The expected return.

Introduction:

Expected return refers to a return that the investors expect on a risky investment in the future.

To determine: The volatility of the portfolio.

Introduction:

Standard deviation refers to the deviation of the actual returns from the expected returns.