Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The chara...

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The chara...

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The chara...

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Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rƒ. The chara...

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Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r_ƒ. The characteristics of two of the stocks are as follows:

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 r_ƒ be greater than 14.15%?

Yes

No

business finance

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Answer 1

Answer #1

(2) for Risk free footfolio WA = 6B SA+GB i LOA = 65 A 65+35 & [65 = 10A OB = 1.65 op - 35 - ER) = -65 (+ .3g(20) TER) = 14.1

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Answer 2

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Expected Return

Standard Deviation

Correlation = –1