5)

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 14% 19 Correlation = -1 Standard Deviation 4% 12 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.) Risk-free rate