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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: Suppose that

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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:


Suppose that there are many stocks in the security market


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

Stock Expected Return Standard Deviation 10% 15 Correlation1 5% 10

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