Question
Suppose you have $20,000 in cash to invest. You decide to short sell $10,000 worth of Coca-Cola stock and invest the proceeds from your short
Suppose you have $20,000 in cash to invest. You decide to short sell $10,000 worth of Coca-Cola stock and invest the proceeds from your short sale, plus your $20,000, in Intel. The expected return of Intel stock is 26% while the expected return of Coca-Cola stock is 6%. The volatilities of Intel and Coca-Cola stocks are 50% and 25%, respectively. The covariance between the Intel and and Coca-Cola stocks is 0.
What is the volatility of your portfolio containing shares of Intel and Coca-Cola? (Hint: You can think of your short sale as a negative investment in Coca-Cola.) A. 72%. B. 76%. C. 66%. D. 69%. E. none of the above.
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