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 $10\%25\%$ B $18\%75\%$ Correlation $=1$

Required:

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?$)$

Note: Round your answer to $2$ decimal places.

Could the equilibrium r$$

be greater than rate of return?

multiple choice

Yes

No

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