An analyst determines that a portfolio with a 35% weight in Investment P and a 65% weight in Investment Q will have a standard deviation of returns equal to zero.
Investment P has an expected return of 8%.
Investment Q has a standard deviation of returns of 7.1% and a covariance with the market of 0.0029.
The risk-free rate is 5% and the market risk premium is 7%.
If no arbitrage opportunities are available, the expected rate of return on the combined portfolio is closest to: A. 6%. B. 7%. C. 5%.
If the no-arbitrage condition is met, a riskless portfolio (a portfolio with zero standard deviation of returns) will yield the risk-free rate of return.
