Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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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 | Expected Return | Standard Deviation | ||||||
A | 12 | % | 4 | % | ||||
B | 19 | 12 | ||||||
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.)
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