Suppose Intel’s stock has an expected return of 20% and a volatility of 30%, while Coca-Cola’s has an expected return of 7% and volatility of 30%. 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?

For Problems 23–26, suppose Johnson & Johnson and Walgreens Boots Alliance have expected returns and volatilities shown below, with a correlation of 22%.

Expected Return Standard Deviation Johnson & Johnson 7% 16%

Walgreens Boots Alliance 10% 20%