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Suppose that many stocks are traded in the market and that it is possible to borrow at the risk - free rate, r . The
Suppose that many stocks are traded in the market and that it is possible to borrow at the riskfree rate, r
The characteristics of two of the stocks are as follows:
Stock Expected Return Standard Deviation A B Correlation
Required:
Calculate the expected rate of return on this riskfree portfolio? Hint: Can a particular stock portfolio be formed to create a synthetic riskfree asset?
Note: Round your answer to decimal places.
Could the equilibrium r
be greater than rate of return?
multiple choice
Yes
No
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