Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, Rf. The characteristics of two of the stocks are as follows: Stock Expected ret Standard dev A 8% 40% B 13% 60% Correlation = -1 Could the equilibrium risk-free rate be greater than 10%?(HINT: Can a particular stock portfolio be substituted for the risk-free rate?)

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, Rf. The characteristics of two of the stocks are as follows: Stock Expected ret Standard dev...

Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, Rf. The characteristics of two of the stocks are as follows:

Stock	Expected ret	Standard dev
A	8%	40%
B	13%	60%
Correlation = -1

Could the equilibrium risk-free rate be greater than 10%?

(HINT: Can a particular stock portfolio be substituted for the risk-free rate?)

Jun 07, 2022

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Suppose that many stocks are traded in the market and that it is possible to borrow at the risk-free rate, Rf. The characteristics of two of the stocks are as follows: Stock Expected ret Standard dev...

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