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Homework answers / question archive / Consider two perfectly negatively correlated risky securities A and B
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. The risk-free portfolio that can be formed with the two securities will earn a(n) _____ rate of return.
Weight *16%-(1-weight)*12%=0
Weight=0.428571429
Return of Risk free portfolio=0.428571429* 10%+(1-0.428571429)*8%
=8.8571%