Consider two perfectly negatively correlated risky securities, K and L.K has an expected rate of return of 13% and a standard deviation of 19%.L has an expected rate of return of 10% and a standard deviation of 16%. The risk-free portfolio that can be formed with the two securities will earn _____ rate of return.
A)9.5%
B)11.4%
C)10.9%
D)9.9%
E)None of the options

Question

Quizplus · Accepted Answer

E(R_P) = 0.46(13%) + 0.54(10%) = 11.38%.

Consider Two Perfectly Negatively Correlated Risky Securities, K and L