Answer :
If the set of securities is available on the market and arbitrage is not possible, the risk-free rate value must be 8.68%.
Weight of Stock A SD of Stock B/(SD of A+ SD of B) 0.83 25/(5+25)
Rate of return 8.68% =8%*0.83+12%* (1-0.83)
The hypothetical rate of return on a risk-free investment is known as the risk-free rate of return. The risk-free rate is the interest that an investor would anticipate from a completely risk-free investment over a given time frame.
You can determine the so-called "actual" risk-free rate by deducting the current inflation rate from the yield on the Treasury bond that corresponds to the length of your investment.
Theoretically, an investor anticipates a return of no less than the risk-free rate on any investment because they will not take on further risk until the prospective return is higher. Negative interest rates can make it more difficult to determine a proxy for the risk-free rate of return in a specific situation, which must take into account the investor's home market.
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