1a) Suppose Intel's stock has an expected return of 25.0% and a volatility of 12.0%,

while Coca-Cola's has an expected return of 4.0% and volatility of 5.0%.

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?

b) Aluminum maker Alcoa has a beta of about 0.98, whereas Hormel Foods has a beta of 1.55.

If the expected excess return of the market portfolio is 3%, which of these firms has a higher equity cost of capital, and how much higher is it?