Question
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock Expected
Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows:
| Stock | Expected Return | Standard Deviation |
|---|---|---|
| A | 12% | 4% |
| B | 17 | 13 |
| 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.)
Note: Do not round intermediate calculations. Round your answer to 3 decimal places.
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A Course In Derivative Securities
Authors: Kerry Back
2005th Edition
3540253734, 978-3540253730
