# Question: Suppose Intel s stock has an expected return of 26 and

Suppose Intel’s stock has an expected return of 26% and a volatility of 50%, while Coca-Cola’s has an expected return of 6% and volatility of 25%. If these two stocks were perfectly negatively correlated (i.e., their correlation coefficient is -1),

a. Calculate the portfolio weights that remove all risk.

b. If there are no arbitrage opportunities, what is the risk-free rate of interest in this economy?

a. Calculate the portfolio weights that remove all risk.

b. If there are no arbitrage opportunities, what is the risk-free rate of interest in this economy?

**View Solution:**## Answer to relevant Questions

Calculate (a) the expected return and (b) the volatility (standard deviation) of a portfolio that is equally invested in Johnson & Johnson’s and Walgreen’sstock.You expect HGH stock to have a 20% return next year and a 30% volatility. You have $25,000 to invest, but plan to invest a total of $50,000 in HGH, raising the additional $25,000 by shorting either KBH or LWI stock. Both KBH ...What is the risk premium of a zero-beta stock? Does this mean you can lower the volatility of a portfolio without changing the expected return by substituting out any zero-beta stock in a portfolio and replacing it with the ...Consider the setting of Problem 18. You decided to look for other comparables to reduce estimation error in your cost of capital estimate. You find a second firm, Thurbinar Design, which is also engaged in a similar line of ...You are trading in a market in which you know there are a few highly skilled traders who are better informed than you are. There are no transaction costs. Each day you randomly choose five stocks to buy and five stocks to ...Post your question