Question
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
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 | % | 55 | % | ||
| B | 4 | % | 45 | % | ||
| 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.)
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Cornerstones Of Financial Accounting
Authors: Bertrand Piccard, Jay Rich, Jeff Jones, Maryanne Mowen, Don Hansen, Nick Jones
1st Edition
0324657730, 9780324657739
