chapter 11 nr. 26

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invest 30% of a. What is the highest possib b. If your portfolio has the volatility in (a) between Delta and Omega? Risk Versus Return: Choosing an Efficient Portfolio 21. Suppose Ford Motor stock has an expected return of 15% and a volatility of 38%, and Molson-Coors Brewing has an expected return of 12% and a volatility of 28%. If the two stocks are uncorrelated, a. What is the expected return and volatility of a portfolio consisting of 70% Ford Motor stock and 30% of Molson-Coors Brewing stock? an b. Given your answer to part (a), is investing all of your money in Molson-Coors stock efficient portfolio of these two stocks? c. Is investing all of your money in Ford Motor an efficient portfolio of these two stocks? 22. Suppose Intel's stock has an expected return of 26% and a volatility of 50%, while Coca-Cola's perfectly negatively has an expected return of 6% and volatility of 25%. If these two stocks were correlated (i.e., their correlation coefficient is -1), a. Calculate the portfolio weights that remove all risk. economy? b. If there are no arbitrage opportunities, what is the risk-free rate of interest in this For Problems 23-26, suppose Johnson & Johnson and Walgreens Boots Alliance have expected returns and volatilities shown below, with a correlation of 21%. Expected Return Standard Deviation Johnson & Johnson 6.9% 17.9% Walgreens Boots Alliance 9.6% 21.6% 23. Calculate (a) the expected return and (b) the volatility (standard deviation) of a portfolio that is equally invested in Johnson & Johnson's and Walgreens' stock. 24. For the portfolio in Problem 23, 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? 25. Calculate (a) the expected return and (b) the volatility (standard deviation) of a portfolio that consists of a long position of $8500 in Johnson & Johnson and a short position of $1500 in Walgreens'. X 26. Using the same data as for Problem 23, calculate the expected return and the volatility (stan- dard deviation) of a portfolio consisting of Johnson & Johnson's and Walgreens' stocks using a wide range of portfolio weights. Plot the expected return as a function of the portfolio volatility. Using your graph, identify the range of Johnson & Johnson's portfolio weights that yield effi- cient combinations of the two stocks, rounded to the nearest percentage point. 143 000 000 worth of MFL