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 Bare given as follows: |
| Stock | Expected Return | Standard Deviation | ||||||
| A | 12 | % | 3 | % | ||||
| B | 19 | 9 | ||||||
| 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.) |
| Risk-free rate | % |
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Understanding Financial Risk Management
Authors: Angelo Corelli
1st Edition
0415746183, 978-0415746182
