The plot below shows the investment frontier that can be created using stocks (green square) and corporate bonds (red circle). The 100% stock portfolio is shown on the plot as a green square (#11) with an E[r] = 9% and a standard deviation = 0.30. The 100% bond portfolio is shown on the plot as a red circle (#2) with an E[r] = 6% and a standard deviation = 0.15.

The line shown is tangent to the frontier at point 7 and has an intercept of .056. Assume the tangency portfolio has an expected return of 7.8%.

Assume you have $10,000 and you can borrow and lend. You want to create the most efficient portfolio possible that has an expected return of 9%. How would you create this portfolio?

A. Invest $5,000 in the bond portfolio and $5,000 in the stock portfolio.

B. You can't create this portfolio using these assets.

C. Borrow $6,521.74 at the risk-free rate and invest $16,521.74 in the tangency portfolio.

D. Borrow $5,454.55 at the risk-free rate and invest $15,454.54 in the tangency portfolio.

E. Invest $5,454.55 in the risk-free and the rest in stock portfolio.

F. Borrow $5,454.55 at the risk-free rate and invest $10,000 in the tangency portfolio.

G. Invest $5,454.55 in the bond portfolio and invest $15,454.54 in the stock portfolio.