Suppose that two stocks, Netflix (NFLX) and Facebook (FB), have the following

characteristics:

	Expected Return	Volatility
Netflix (NFLX)	45%	20%
Facebook (FB)	40%	25%

Further, their correlation is equal to 40%. Assume also that the risk-free rate is 3%.

b) Now suppose that you have invested all your available wealth (50,000) in Netflix stock only. You know that the expected return of the market portfolio is equal to 25% and its volatility is equal to 10%. Assume that the characteristics of Netflix stock and the risk-free rate are the same as in part a). If CAPM assumptions hold:

1. What alternative portfolio has the lowest possible volatility while having the same expected return as Netflix? What is the volatility of this new portfolio? Say if you would borrow money to invest in this alternative portfolio.

2. What investment has the highest possible expected return given that you want to maintain the same volatility as Facebook? What is the expected return of this new portfolio? Say if you would borrow money to invest in this alternative portfolio.