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:

Required:

a$.$ Calculate the expected rate of return on this risk$-$free portfolio? $($Hint: Can a

particular stock portfolio be formed to create a "synthetic" risk$-$free asset?$)$

$($Round your answer to $2$ decimal places.$)$

Rate of return

$\%$

b$.$ Could the equilibrium $r_f$ be greater than rate of return?

Yes

No