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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 f .
Suppose that many stocks are traded in the market and that it is possible to borrow at the riskfree rate, The characteristics of two of the stocks are as follows: Correlation Required: a Calculate the expected rate of return on this riskfree portfolio? Hint: Can a particular stock portfolio be formed to create a "synthetic" riskfree asset?Round your answer to decimal places. Rate of return b Could the equilibrium be greater than rate of return? Yes No
Suppose that many stocks are traded in the market and that it is possible to borrow at the riskfree rate, The characteristics of two
of the stocks are as follows:
Correlation
Required:
a Calculate the expected rate of return on this riskfree portfolio? Hint: Can a particular stock portfolio be formed to create a
"synthetic" riskfree asset?Round your answer to decimal places.
Rate of return
b Could the equilibrium be greater than rate of return?
Yes
No
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