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.) (Do not round intermediate calculations. Round your answer to 3 decimal places.)
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Investments An Introduction
Authors: Herbert B. Mayo
13th Edition
0357127951, 978-0357127957
