You currently have an investment portfolio in which you own 75 shares of Tesla's stock valued at $1,000 each and 500 shares of Apple's stock valued at $150 each. Your research shows that Tesla's stook has a beta of 16 and Apple's stock has a beta of 14. The volatility (standard deviation of the returns) of your portfolio is 50%. The risk-free rate is 5% and the expected return on the market portfolio is 10% while the volatility of the market portfolio is 20%. Assume that the assumptions of the CAPM are verified.

What is an alternative investment strategy that would provide the same volatility risk as the one you currently have with your investment portfolio but a higher expected return? 

Describe the assets and the portfolio weights of this alternative portfolio and the additional expected returns. 

Describe the transactions you need to complete to move away from your existing portfolio and invest in that new portfolio

Answer rating: 100% (QA)

To find an alternative investment strategy with the same volatility risk but a higher expected return we need to construct a portfolio that has a high... View the full answer