Suppose that many stocks are traded in the market and that it is
possible to borrow...
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Finance
Suppose that many stocks are traded in the market and that it ispossible to borrow at the risk-free rate,rÆ’. The characteristics of two of thestocks 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-freeportfolio? (Hint: Can a particular stock portfolio besubstituted for the risk-free asset?) (Round your answer to2 decimal places.)
  Rate of return
%
b.
Could the equilibrium rÆ’ be greaterthan 9.20%?
Yes
No
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