5- Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 10% 15 Correlation = -1 Standard Deviation 5% 10 Suppose that it is possible to borrow at the risk-free rate, ry. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.)
5- Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 10% 15 Correlation = -1 Standard Deviation 5% 10 Suppose that it is possible to borrow at the risk-free rate, ry. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.)
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
Problem 1PS
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Transcribed Image Text:5- Suppose that there are many stocks in the security market and that the characteristics of stocks
A and B are given as follows:
Stock
A
B
Expected Return
10%
15
Correlation = -1
Standard Deviation
5%
10
Suppose that it is possible to borrow at the risk-free rate, ry. 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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