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		9	%		30	%
B		16	%		70	%
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.)

b. Could the equilibrium r be greater than 11.10%?

multiple choice

• Yes

• No

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, If. The characteristics of two of the stocks are as follows: Stock . B Correlation = -1 Expected Return 9% 16% Standard Deviation 30% 70% 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 % b. Could the equilibrium rf be greater than 11.10%? O Yes O No