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%

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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Question

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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