In this problem we assume that the annual expected rate of return of the market portfolio is 12% and the annual risk-free rate is 2%. The standard deviation of the market portfolio returns is 24%. Assume the market is in equilibrium such that the Capital Asset Pricing Model (CAPM) holds: the market portfolio is efficient. If you have $1,000 to invest, how should you allocate it to achieve an annual expected return of 18%? Invest $800 in the risk-free asset and $200 in the market portfolio Invest $600 in the risk-free asset and sell short $1600 in the market portfolio Borrow $260 at the risk-free rate and invest $1,260 in the market portfolio Invest $600 in the risk-free asset and $400 in the market portfolio Borrow $600 at the risk-free rate and invest $1,600 in the market portfolio Invest $260 in the risk-free asset and $740 in the market portfolio