What should be the risk-free rate if there is no arbitrage


The expected return of Yahoo is 12% with standard deviation of 20% and the expected return of Google is 15% with standard deviation of 25%. The correlation coefficient of Yahoo and Google is -1.

Part 1: What should be the risk-free rate if there is no arbitrage opportunity?

Part 2: Show the efficient frontier? Clearly label the axes and show the expected return and standard deviation of two portfolios on the frontier.

Part 3: What is the Sharpe ratio of the tangency portfolio?

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Financial Management: What should be the risk-free rate if there is no arbitrage
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