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The risk-free market asset is currently trading at 1.8%, the expected rate of return on the...

The risk-free market asset is currently trading at 1.8%, the expected rate of return on the market is 6%. If you held a portfolio of two equal-weighted assets, A and B, whose Corr(A,B) = –1, then what must be the rate of return on this portfolio?

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Answer #1

RATE OF RETURN PORTFOLIO = (WEIGHT OF RISK FREE ASSET X RETURN ON RISK FREE ASSET) + (WEIGHT OF MARKET X RETURN ON MARKET)

RATE OF RETURN PORTFOLIO = (0.50 X 1.8%) + (0.50 X 6%) = 3.9%

ANSWER : 3.9% (THUMBS UP PLEASE) (I HOPE THAT RISK FREE ASSET IS TAKEN AS "A" AND RISKY ASSET AS "B", BECAUSE GENERALLY CORRELATION BETWEEN RISK FREE ASSET AND RISKY ASSET IS "0"(ZERO))

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