The expected return of Yahoo is 12% with standard deviation of 20% and the expected return of Google is 15% with standard deviation of 25%. The correlation coefficient of Yahoo and Google is -1.
Part 1: What should be the risk-free rate if there is no arbitrage opportunity?
Part 2: Show the efficient frontier? Clearly label the axes and show the expected return and standard deviation of two portfolios on the frontier.
Part 3: What is the Sharpe ratio of the tangency portfolio?