Consider the following data for assets A and B: $\bar { R } _ { A } = 12 \%$ ; $\bar { R } _ { B } = 8 \%$ ; $\sigma _ { \mathrm { A } } = 10 \%$ ; $\sigma _ { B } = 4 \%$ ; $\rho _ { A B } = - 1.0$
a. If only assets A and B are available, draw the efficient frontier.
b. If the riskless lending and borrowing rate is 10%, why is this a disequilibrium situation and what is the arbitrage that will restore equilibrium?

Question

Consider the following data for assets A and B: $\bar { R } _ { A } = 12 \%$ ; $\bar { R } _ { B } = 8 \%$ ; $\sigma _ { \mathrm { A } } = 10 \%$ ; $\sigma _ { B } = 4 \%$ ; $\rho _ { A B } = - 1.0$ 
a. If only assets A and B are available, draw the efficient frontier.
b. If the riskless lending and borrowing rate is 10%, why is this a disequilibrium situation and what is the arbitrage that will restore equilibrium?

Quizplus · Accepted Answer

The Answer of Consider the following data for assets A and B: $\bar { R } _ { A } = 12 \%$ ; $\bar { R } _ { B } = 8 \%$ ; $\sigma _ { \mathrm { A } } = 10 \%$ ; $\sigma _ { B } = 4 \%$ ; $\rho _ { A B } = - 1.0$ 
a. If only assets A and B are available, draw the efficient frontier.
b. If the riskless lending and borrowing rate is 10%, why is this a disequilibrium situation and what is the arbitrage that will restore equilibrium?

Consider the Following Data for Assets a and B RˉA=12%\bar { R } _ { A } = 12 \%RˉA​=12%

Consider the Following Data for Assets a and B $\bar { R } _ { A } = 12 \%$