EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN: 9781337514835
Author: MOYER
Publisher: CENGAGE LEARNING - CONSIGNMENT
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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
Standard
Deviation
12%
19
Correlation = -1
3%
9
Suppose that it is possible to borrow at the risk-free rate, r. What must be the value of the risk-free rate? (Hint: Think about
constructing a risk-free portfolio from stocks A and B. Since they have a perfect negative correlation, the rate of return will be the r
Note: Do not round intermediate calculations. Round your answer to 3 decimal places.
Risk-free rate
%
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Transcribed Image Text: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 Standard Deviation 12% 19 Correlation = -1 3% 9 Suppose that it is possible to borrow at the risk-free rate, r. What must be the value of the risk-free rate? (Hint: Think about constructing a risk-free portfolio from stocks A and B. Since they have a perfect negative correlation, the rate of return will be the r Note: Do not round intermediate calculations. Round your answer to 3 decimal places. Risk-free rate %
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