Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, rf. The characteristics of two of the stocks are as follows: Correlation = -1 Stock Rate of return A B Yes No Expected Return Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a "synthetic" risk-free asset?) (Round your answer to 2 decimal places.) X Answer is complete but not entirely correct. 9% 13% 15.60 X % Standard Deviation 45% 55% b. Could the equilibrium rf be greater than rate of return?

Suppose that many stocks are trodod 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: Required: a. Calculate the expected rate of return on this risk-free portfolio? (Hint: Can a particular stock portfolio be formed to create a "synthetic" risk-free asset?) (Round your answer to 2 decimal places.) b. Could the equilibrium xf be greater than rate of return? Yes NoO