Question

In: Finance

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

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 8 % 40 %
B 12 % 60 %
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 equilibrium rƒ be greater than 9.60%?

Yes
No

Solutions

Expert Solution

jeff jeffy answered 1 month ago
Next > < Previous

Related Solutions

Suppose that many stocks are traded in the market and that it is possible to borrow...
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 8 % 55 % B 4 % 45 % 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.)
Suppose that many stocks are traded in the market and that it is possible to borrow...
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 7 % 30 % B 10 % 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...
Suppose that many stocks are traded in the market and that it is possible to borrow...
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 10 % 25 % B 18 % 75 % 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.) b....
Suppose that many stocks are traded in the market and that it is possible to borrow...
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 10 % 25 % B 18 % 75 %   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...
Suppose that many stocks are traded in the market and that it is possible to borrow...
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 8 % 40 % B 11 % 60 %   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...
Suppose that there are many stocks in the security market and that the characteristics of stocks...
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock Expected Return Standard Deviation A 8% 12% B 20% 24% Correlation = -1 A) Suppose that it is possible to borrow at the risk-free rate. What must be the value of the risk-free rate? B) What are the risk and return of this minimum risk portfolio?
Suppose that there are many stocks in the security market and that the characteristics of stocks...
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock Expected Return Standard Deviation A 11 % 4 % B 21 10 Correlation = –1 Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer...
Suppose that there are many stocks in the security market and that the characteristics of stocks...
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock Expected Return Standard Deviation A 11 % 6 % B 17 9 Correlation = –1 Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer...
How stocks are traded in financial market?
How stocks are traded in financial market?
Suppose that there are two stocks in the security market. The characteristics of stocks A and...
Suppose that there are two stocks in the security market. The characteristics of stocks A and B are given as follows: Stock Expected Return Standard Deviation A 13% 5% B 15% 15% The correlation between these two stocks is -1. Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.)
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT