Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free of the stocks are as follows: Stock A B Correlation = -1 Rate of return Expected Return 5% 10% Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portf "synthetic" risk-free asset?) (Round your answer to 2 decimal places.) % Standard Deviation 45% 55%
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free of the stocks are as follows: Stock A B Correlation = -1 Rate of return Expected Return 5% 10% Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portf "synthetic" risk-free asset?) (Round your answer to 2 decimal places.) % Standard Deviation 45% 55%
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 21P
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Problem 6-14 (Algo)
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rf. The characteristics of two
of the stocks are as follows:
Correlation = -1
Rate of return
Stock
A
B
Required:
a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a
"synthetic" risk-free asset?) (Round your answer to 2 decimal places.)
Yes
No
Expected
Return
5%
10%
%
Standard
Deviation
45%
55%
b. Could the equilibrium rf be greater than rate of return?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Faac270a2-302d-46c9-af20-1df893270de3%2F732ecd48-a034-4d3e-a282-70064c80a1ce%2Frf58lte_processed.jpeg&w=3840&q=75)
Transcribed Image Text:ces
Problem 6-14 (Algo)
Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rf. The characteristics of two
of the stocks are as follows:
Correlation = -1
Rate of return
Stock
A
B
Required:
a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a
"synthetic" risk-free asset?) (Round your answer to 2 decimal places.)
Yes
No
Expected
Return
5%
10%
%
Standard
Deviation
45%
55%
b. Could the equilibrium rf be greater than rate of return?
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