Question: Assuming there is ONE risk factor, the interest rate (IR) risk factor. Investors can borrow at the risk-free rate rf of 3%. Portfolio (A) is

Assuming there is ONE risk factor, the interest rate (IR) risk factor. Investors can borrow at the risk-free rate rf of 3%. Portfolio (A) is well-diversified with the risk-return profile below. If an investor wants to profit $10,000 from a net-zero portfolio, constructed with Portfolio A, IR portfolio, and the risk-free rate. How much does he need to borrow/lend at the risk-free rate?

		E(R)-r_f
Portfolio (A)	1.2	8%
Interest Rate Risk Factor Portfolio	1.0	6%

		Borrow $55,556
		Lend $55,556
		Borrow $250,000
		Lend $250,000
		None of the above

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