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 11% Stock A B Standard Deviation 6% 9 17 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
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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:
Expected
Return
11%
17
Correlation = -1
Stock
A
B
Standard
Deviation
6%
9
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.)
Note: Do not round intermediate calculations. Round your answer to 3 decimal places.
Risk-free rate
Transcribed Image Text: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 11% 17 Correlation = -1 Stock A B Standard Deviation 6% 9 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.) Note: Do not round intermediate calculations. Round your answer to 3 decimal places. Risk-free rate
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