Suppose that among the many stocks in the market there are two securities, A and B, with
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Suppose that among the many stocks in the market there are two securities, A and B, with the following characteristics: A has E(Ra) = .08 and σ =.4 and B has E(Rb) = .18 and σ =.6. Suppose the correlation between these two is ρ = −1 and that it is possible to borrow and lend at the risk-free rate, rf.
What must be the equilibrium risk-free rate?
Related Book For
Fundamentals of Investments
ISBN: 978-0132926171
3rd edition
Authors: Gordon J. Alexander, William F. Sharpe, Jeffery V. Bailey
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