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) 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. A) 8.9% B) 9.9% C) 8.5% D) 9.0%

User Mbang
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Answer:

D) 9.0%

Step-by-step explanation:

Calculation to determine what The risk-free portfolio that can be formed with the two securities will earn

Using this formula

Return of the portfolio =Weight of stock A * Return of Stock A + Weight of Stock B * Return of Stock B

Let plug in the formula

Return of the portfolio=( 0.5 * 0.1)+ (0.5 * 0.08)

Return of the portfolio= 0.05 + 0.04

Return of the portfolio= 0.09*100

Return of the portfolio= 9%

Therefore The risk-free portfolio that can be formed with the two securities will earn a(n) 9.0% rate of return.

User Platus
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