Problem 2. Consider the following stocks with correlation of 0.22. Expected Return Volatility Johnson & Johnson...

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Problem 2. Consider the following stocks with correlation of 0.22. Expected Return Volatility Johnson & Johnson Walgreen Company 7% 10% 16% 20% (a) What is the expected return and the volatility of a portfolio that is equally invested (weights are 1/2 and 1/2) in Johnson & Johnson's and Walgreen's stock? (b) For this equally-weighted portfolio, if the correlation between Johnson & Johnson's and Wal- green's stock were to increase, how would it affect the expected return and the volatility of this portfolio? (c) What is the expected return and the volatility of a portfolio that consists of a long position of $10,000 in Johnson & Johnson and a short position of $2000 in Walgreen's? Problem 3. Consider a market with two risky assets. Suppose their correlation coefficient is -1. Show that there is always a portfolio that achieves 0 volatility analytically. Problem 2. Consider the following stocks with correlation of 0.22. Expected Return Volatility Johnson & Johnson Walgreen Company 7% 10% 16% 20% (a) What is the expected return and the volatility of a portfolio that is equally invested (weights are 1/2 and 1/2) in Johnson & Johnson's and Walgreen's stock? (b) For this equally-weighted portfolio, if the correlation between Johnson & Johnson's and Wal- green's stock were to increase, how would it affect the expected return and the volatility of this portfolio? (c) What is the expected return and the volatility of a portfolio that consists of a long position of $10,000 in Johnson & Johnson and a short position of $2000 in Walgreen's? Problem 3. Consider a market with two risky assets. Suppose their correlation coefficient is -1. Show that there is always a portfolio that achieves 0 volatility analytically.