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Suppose that there are many stocks in the market and that the characteristics of stocks A and B are as follows: Stock Expected Return Standard

Suppose that there are many stocks in the market and that the characteristics of stocks A and B are as follows:

Stock Expected Return Standard Deviation

A 0.10 0.05

B 0.15 0.10

Correlation=-1

Suppose that it is possible to borrow at the risk-free rate rf . What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B!).

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