Suppose Intel's stock has an expected return of 26% and a volatility (standard deviation) of 50%, while Coca-Cola's stock has an expected return of 6% and a volatility of 25%. If these two stocks were perfectly negatively correlated (i.e. their correlation is -1) a) Calculate the portfolio weights that remove all risk. b) What is the risk-free rate of interest in this economy?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Suppose Intel's stock has an expected return of 26% and a volatility (standard deviation)
of 50%, while Coca-Cola's stock has an expected return of 6% and a volatility of 25%. If
these two stocks were perfectly negatively correlated (i.e. their correlation is -1)
a) Calculate the portfolio weights that remove all risk.
b) What is the risk-free rate of interest in this economy?
Transcribed Image Text:Suppose Intel's stock has an expected return of 26% and a volatility (standard deviation) of 50%, while Coca-Cola's stock has an expected return of 6% and a volatility of 25%. If these two stocks were perfectly negatively correlated (i.e. their correlation is -1) a) Calculate the portfolio weights that remove all risk. b) What is the risk-free rate of interest in this economy?
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