Suppose that many stocks are traded in the market and that it is possible to borrow...

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Finance

Suppose that many stocks are traded in the market and that it ispossible to borrow at the risk-free rate,r_ƒ. The characteristics of two of thestocks are as follows:
Stock Expected Return Standard Deviation
A 10 % 25 %
B 18 % 75 %
Correlation = –1
a.
Calculate the expected rate of return on this risk-freeportfolio? (Hint: Can a particular stock portfolio besubstituted for the risk-free asset?) (Round your answer to2 decimal places.)
Rate of return %
b.
Could the equilibrium r_ƒ be greaterthan 12.00%?
Yes
No

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Expected Return

Standard Deviation

Correlation = –1

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Suppose that many stocks are traded in the market and that it ispossible to borrow at the risk-free rate,rƒ. The characteristics of two of thestocks are as follows:StockExpected ReturnStandard DeviationA10%25%B18%75% Correlation = –1a.Calculate the expected rate of return on this risk-freeportfolio? (Hint: Can a particular stock portfolio besubstituted for the risk-free asset?) (Round your answer to2 decimal places.) Rate of return%b.Could the equilibrium rƒ be greaterthan 12.00%?YesNo