Suppose Targets stock has an expected return of 21% and a volatility of 43%, Hersheys stock has an expected return of 11% and a volatility of 22%, 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% and a volatility of 30%. Suppose this new stock is uncorrelated with Targets and Hersheys 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.