Assume that the market is in equilibrium, and there is no arbitrage opportunity. Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r_f. The characteristics of two of the stocks are as follows:

Stock	Expected Return	Standard Deviation
A	4%	20%
B	6.5%	30%
Correlation coefficient = -1

Could the equilibrium risk-free rate of return r_f be greater than 5%? (Hint: Can a particular risk-freestock portfolio be formed? And the return of risk-free portfolio should be equal to the equilibrium risk-free rate of return.)

A) It cannot be greater than 5%. B) It can be greater than 5%.