Suppose that the annual returns on two stocks a and b are


Question: Suppose that the annual returns on two stocks (A and B) are perfectly negatively correlated, and that rA = 0.05, rB = 0.15, σA = 0.1, σB = 0.4. Assuming that there are no arbitrage opportunities, what must the one-year interest rate be?

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Finance Basics: Suppose that the annual returns on two stocks a and b are
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