Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Expected Return Stock Standard Deviation 69 11 149 16 Correlation-1 Suppose that it is possible to borrow at the risk-free rate, r. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B) Note: Do not round intermediate calculations. Round your answer to 3 decimal places. Risk-free rate

Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Expected Return Stock Standard Deviation 69 11 149 16 Correlation-1 Suppose that it is possible to borrow at the risk-free rate, r. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B) Note: Do not round intermediate calculations. Round your answer to 3 decimal places. Risk-free rate

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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Concept explainers

Portfolio Management

Portfolio management is the process by which an investor decides that how the person will invest in a variety of assets in order to get a desired return in the future. A portfolio means a pool of assets that includes securities, bonds, and other investment instruments which helps in risk minimization of the money that has been invested. In other words, it can be said that a portfolio means a combination of assets in which an investor decides to invest their money in order to get a lump sum return in the future or even a series of cash flow that the person is expecting at the end of their job life.

Question

Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:
Expected
Return
14%
16
Correlation-1
Stock
Standard
Deviation
69
Risk-free rate
11
Suppose that it is possible to borrow at the risk-free rate, rr. What must be the value of the risk-free rate? (Hint: Think about
constructing a risk-free portfolio from stocks A and B.)
Note: Do not round intermediate calculations. Round your answer to 3 decimal places.
%

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