Suppose that the only assets available to you are a risk-free Treasury bill yielding 1% per year and an S&P 500 ETF with an expected return of 9% per year and a standard deviation of 18%. Your broker will allow you to buy on margin, but the interest rate on borrowing is 6%. On a graph with standard deviation on

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Suppose that the only assets available to you are a risk-free Treasury bill yielding 1% per year and an S&P 500 ETF with an expected return of 9% per year and a standard deviation of 18%. Your broker will allow you to buy on margin, but the interest rate on borrowing is 6%.

On a graph with standard deviation on the horizontal axis and mean on the vertical axis, draw the investment opportunity set. (The capital allocation line is an investment opportunity set, but under the assumptions here the set will be different.)

Related Book For  answer-question

Income Tax Fundamentals 2013

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill

ISBN: 9781285586618