Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:
| Stock | Expected Return | Standard Deviation |
| A | 12% | 5% |
| B | 17 | 10 |
| Correlation = -1 | ||
Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.)
Risk-free rate = _______ %
Homework Answers
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Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:
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