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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, rs. The characteristics of two

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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, rs. The characteristics of two of the stocks are as follows: Stock Expected Return Standard Deviation 70 450 100 550 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.) Rate of retur b. Could the equilibrium rybe greater than 8.35%? Yes NO

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