Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:   Stock   Expected Return   Standard Deviation A     11 %     7 % B     17       11     Correlation = –1           Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.)

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
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Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:

 

Stock   Expected Return   Standard Deviation
A     11 %     7 %
B     17       11  
  Correlation = –1      
 

 

Suppose that it is possible to borrow at the risk-free rate, rf. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B.) (Do not round intermediate calculations. Round your answer to 3 decimal places.)

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