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Assume that the market has a large number of stocks and that borrowing at the risk-free rate is available. The following are the features

 

Assume that the market has a large number of stocks and that borrowing at the risk-free rate is available. The following are the features of two of the stocks: Stock A has a 6 percent predicted return and a 45 percent standard deviation. Stock B has a 10-percent anticipated return and a 75-percent standard deviation. The returns of the two stocks have a -1 correlation. What do you think the market's risk-free rate should be?

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