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Suppose the risk-free return is 4% and the market portfolio has an expected return of 10% and a volatility of 16%. Johnson and Johnson Corporation
Suppose the risk-free return is 4% and the market portfolio has an expected return of 10% and a volatility of 16%. Johnson and Johnson Corporation (Ticker: JNJ) stock has a 30% volatility and a correlation with the market of 0.04. (a) What is Johnson and Johnson's beta (rounded to 4 decimal places)? (b) Under the CAPM assumptions, what is its required return (as a percent rounded to two decimal places)? (c) If expected return for Johnson and Johnson's stock is going to be 6%, is the stock undervalued or overvalued? O undervalued O overvalued What will investors do? Investors will start selling the stock and the stock price will rise until the expected return reduces and is equal to the required return. Investors will start purchasing the stock and the stock price will rise until the expected return reduces and is equal to the required return. Investors will start purchasing the stock and the stock price will fall until the expected return reduces and is equal to the required return. Investors will start selling the stock and the stock price will fall until the expected return reduces and is equal to the required return
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