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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.)

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jeff jeffy answered 2 years ago
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