Question

Saved Help Submit Save & Exit Week 3: Practice Quiz Check my work 4. Suppose that many stocks are traded in the market and that it is possible to borrow at the risk- free rate, re. The characteristics of two of the stocks are as follows: 1.25 points Stock А Standard deviation Expected Return 8% 4% SSX 45X Correlation eBook Print a. Calculate the expected rate of return on this risk-free portfolto? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (Round your answer to 2 decimal places.) References Rate of return 96 b. Could the equilibrium , be greater than 5.80%? Yes No

Answer 1

Date Page ns. A. WEIGHT OF A = TB TATGB В 45 45% 55+45 - weight of B = t - weight of A. - 1-0.45 -0.55 or 55% Expected Return = Expected Return of Ax Weight A Expected Return of B & weight B 8 80.45+ 4 X 0.55 5.80 % B. equilibrium pf .7 5.80% No CS Sand with CamScanner