Suppose that many stocks are traded in the market and that it is possible to borrow at

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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 Expected Return Standard Deviation

A 7% 30%

B 14% 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.)

Rate of return%

b.Could the equilibriumrbe greater than 9.10%?

Yes?

No?

Posted Date: May 18, 2024 05:00 AM

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Suppose that many stocks are traded in the market and that it is possible to borrow at

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