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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, f The characteristics of two of the stocks are as follows: Stock A B Correlation = -1 Expected Return 7% 10 % O Yes O No 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.) Rate of return b. Could the equilibrium rf be greater than 8.35%? Standard Deviation 45 % 55 % %

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, f The characteristics of two of the stocks are as follows: Stock A B Correlation = -1 Expected Return 7% 10 % O Yes O No 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.) Rate of return b. Could the equilibrium rf be greater than 8.35%? Standard Deviation 45 % 55 % %

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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. The characteristics of two of the stocks are as follows: Stock A B Correlation = -1 Rate of return Expected Return 7% 10 % 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.) O Yes O No Standard Deviation. 45 % 55 % % b. Could the equilibrium rf be greater than 8.35%?
Transcribed Image Text:Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r. The characteristics of two of the stocks are as follows: Stock A B Correlation = -1 Rate of return Expected Return 7% 10 % 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.) O Yes O No Standard Deviation. 45 % 55 % % b. Could the equilibrium rf be greater than 8.35%?
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