Question: I have the answer, I just need an explaination. When solving this problem, how do you get the number 2 in the follwing equation: E
I have the answer, I just need an explaination. When solving this problem, how do you get the number 2 in the follwing equation: E[Rxp] = rf + x(E[Rp] - rf) = 0.06 + 2(0.12 - 0.06) = 0.18
I understand the rest of the formula, but I'm not sure where the 2 is coming from. The question associated with it is below. Again, I don't need the answer to the question below, I just need to know how the 2 was calculated. Please show all work. Thank you
18) Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 6% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange-traded fund (ETF) with a 12% expected return and a 20% volatility. The expected return of your investment is closest to: A) 18%
Explanation: A) E[Rxp] = rf + x(E[Rp] - rf)
= 0.06 + 2(0.12 - 0.06) = 0.18 or 18%
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