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	%		30	%
B		17	%		70	%
Correlation = 1

a.	Calculate the expected rate of return on the risk-free portfolio? (Hint: Try to construct a risk-free portfolio using stocks A and B.) (Enter your answer as a percentage rounded to 2 decimal places.)

Expected rate of return=

%

b.

Could the equilibrium r be greater than, equal to, or less than your answer in #a?

(choose one)

	greater than
	equal to
	less than