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 6% 25%

B 12% 75%

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 equilibriumrbe greater than 7.50%?