Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 10% Standard Deviation 5% 9 18 Correlation = -1 Risk-free rate 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. %

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
A
B
Expected
Return
10%
Standard
Deviation
5%
9
18
Correlation = -1
Risk-free rate
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.
%
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: Stock A B Expected Return 10% Standard Deviation 5% 9 18 Correlation = -1 Risk-free rate 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. %
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