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Suppose that the following set of securities are available in the market: Stock A Expected Return 8% 12% Correlation = -1 Standard Deviation 5% 25%
Suppose that the following set of securities are available in the market: Stock A Expected Return 8% 12% Correlation = -1 Standard Deviation 5% 25% B What must the value of the risk-free rate be? (Hint: Think about constructing a risk- free portfolio from stocks A and B. Absent arbitrage, all risk-free assets should provide the risk-free return.)
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