Suppose Target's stock has an expected return of 20 % and a volatility of 37 %, Hershey's stock has an expected return of 12 % and a volatility of 25 %, 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 16.0 % and a volatility of 31 %. Suppose this new stock is uncorrelated with Target's and Hershey's stock.

The expected return is _%?

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.