Q6 Q7

Suppose Target's stock has an expected return of 25% and a volatility of 42%, Hershey's stock has an expected return of 12% and a volatility of 27%, and these two stocks are uncorrelated. a. What is the expected return and volatility of an equally weighted portfolio of the two stocks? Consider a new stock with an expected return of 18.5% and a volatility of 28%. Suppose this new stock is uncorrelated with Target's and Hershey's stock. b. Is holding this stock alone attractive compared to holding the portfolio in (a)? c. Can you improve upon your portfolio in (a) by adding this new stock to your portfolio? Explain. a. What is the expected return and volatility of an equally weighted portfolio of the two stocks? The expected return is \%. (Round to two decimal place.) The volatility is \%. (Round to two decimal place.) Consider a new stock with an expected return of 18.5% and a volatility of 28%. Suppose this new stock is uncorrelated with Target's and Hershey's stock. b. Is holding this stock alone attractive compared to holding the portfolio in (a)? (Select the best choice below.) A. Yes, the new stock dominates Target. B. No, Target dominates the new stock. C. Yes, the new stock dominates Hershey, so you should hold this stock alone. D. No, a combination of the Hershey and Target stocks has the same expected return but with a lower volatility. c. Can you improve upon your portfolio in (a) by adding this new stock to your portfolio? Explain. (Select the best choice below.) A. Yes, but you should just hold the new stock by itself