The risk-free portfolio that can be formed with the two securities will earn _____ rate of return.
A)8.5%
B)9.0%
C)8.9%
D)9.9%
E)none of the above

Question

Quizplus · Accepted Answer

The risk-free portfolio is a portfolio that has a zero beta. This means that the portfolio's return is not correlated with the market's return. The risk-free rate is the rate of return that the risk-free portfolio earns. In this case, the risk-free portfolio is a portfolio that is invested 50% in security A and 50% in security B. The expected return of this portfolio is 8.9%.

The Risk-Free Portfolio That Can Be Formed with the Two