Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here, with a correlation of 23%. Calculate (a) the expected return and (b) the volatility (star deviation) of a portfolio that consists of a long position of $12,000 in Johnson & Johnson and a short position of $1,500 in Walgreens. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Expected Return 7.4% 9.2% Johnson & Johnson Walgreens Boots Alliance Standard Deviation 17.9% 20.8% - X
Suppose Johnson & Johnson and Walgreen Boots Alliance have expected returns and volatilities shown here, with a correlation of 23%. Calculate (a) the expected return and (b) the volatility (star deviation) of a portfolio that consists of a long position of $12,000 in Johnson & Johnson and a short position of $1,500 in Walgreens. Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Expected Return 7.4% 9.2% Johnson & Johnson Walgreens Boots Alliance Standard Deviation 17.9% 20.8% - X
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter2: Risk And Return: Part I
Section: Chapter Questions
Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...
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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.
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