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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 characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 9 % 30 % B 16 % 70 % 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.)Could the equilibrium rƒ be greater than 11.10%?

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Financial Management, Finance

Category:- Financial Management
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