Question: question 1. Review the example from the lecture about Umbrella Inc and Sunscreen Inc. Both companies have 10% return & 45% volatility and are perfectly

question 1.

Review the example from the lecture about Umbrella Inc and Sunscreen Inc. Both companies have 10% return & 45% volatility and are perfectly negatively correlated.

Assume you sell 25% of umbrella inc. and buy sunscreen inc. such that you hold 75% umbrella and 25% sunscreen. What is the return and risk of that portfolio?

question 2.

The risk of each stock (Sunscreen or Umbrella) by ITSELF is the its standard deviation, which is this example is 45%. What is the measure of each stock's contribution to risk when held together in a portfolio? (Hint: the risk of a portfolio comprising equal proportions of Sunscreen & Umbrella is zero. Yet the risk of each stock by itself is 45%).

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