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Consider two perfectly negatively correlated risky securities A and B

Finance

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.

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Weight *16%-(1-weight)*12%=0

Weight=0.428571429

 

Return of Risk free portfolio=0.428571429* 10%+(1-0.428571429)*8%

=8.8571%