Finance Assignment | Professional Writing
June 2nd, 2020
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The characteristics of two of the stocks are as follows:
Stock | Expected Return | Standard Deviation | ||||
A | 10 | % | 25 | % | ||
B | 18 | % | 75 | % | ||
Correlation = –1 | ||||||
a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (Round your answer to 2 decimal places.)
b. Could the equilibrium rƒ be greater than 12.00%?
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