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

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Suppose that there are many stocks in the security market and that the characteristics of stocks A and B are given as follows: Stock A B Expected Return 14% 20 Correlation = -1 Standard Deviation 4% 13 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.) (Do not round intermediate calculations. Round your answer to 3 decimal places.) Risk-free rate %

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