Suppose your investment budget is $300,000 and you can borrow an additional $120,000 at risk-free interest rates. You're trying to invest all $420,000 in risk portfolio P.

 

(a) Calculate the ratio (y) of the investment budget invested in risky assets. Calculate the ratio (1-y) of the investment budget invested in risk-free assets.

(b) Assume that a one-year investment in risky assets results in a return of $63,000 while paying interest of $8,400 on the borrowed amount. 

What is the expected return (E(rp)) of the risk portfolio? What is the risk-free rate of return (rf)? Find the expected return (E(rC)) for the entire completion portfolio.

(c) Suppose the standard deviation of your risk portfolio is σ_P = 22%. What is the Sharpe ratio of the completed portfolio?

Answer rating: 100% (QA)

a To calculate the ratio y of the investment budget invested in risky assets we divide the investmen... View the full answer