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Calculate the portfolio weights that remove all risk

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Reference no: EM133049811

Question - Portfolio Theory - Stock A has expected return of 26% and volatility 50%. Stock B has expected return of 7% and volatility 30%. The two stocks are perfectly negatively correlated (i.e., correlation coefficient of -1).

a. Calculate the portfolio weights that remove all risk (i.e., the resulting portfolio must have a volatility of zero).

b. If there are no arbitrage opportunities, what is the risk-free rate of interest in this economy?

Reference no: EM133049811

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