Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, r. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation A 8 % 40 % B 12 % 60 % Correlation = 1 a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (Round your answer to 2 decimal places.)

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rf. The characteristics of two of the stocks are as follows: Stock A B Correlation = -1 Expected Return Standard deviation 8% 40% 12% 60% a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be substituted for the risk-free asset?) (Round your answer to 2 decimal places.) Rate of return %