Tools Table Window Help S a E Mon Jan 27 1:53 AM Q Search in Document WE MT S20 (1)DH Word File Edit View Insert Format SU Home Insert Draw Design Layout 8 Cambria (Hea... 12 AA Paste BI U abe X2 x A Mailings Review View + Share References Aa A + AaBbCcDdE AaBbCD AaBbCcDde AaBbCedi Aabbccddee AaBb AaBbCeDdE, O Emphasis Heading 1 Normal Strong Subtitle No Spacing Styles Pane 5. (Note: You don't need calculations from any other answers for this question.) Suppose there is an investor with a very high risk tolerance. She has two choices: 1-Invest 100% of her wealth in a US stock market index fund (for example a Russell 2000 vs S&P 500 Index fund), with o = 22% and E(r) = 18%, or 2-Borrow, and invest 100% of her wealth, plus the borrowed money, in a portfolio of two funds which she has weighted to be an Optimal Risky Portfolio. This Optimal Risky Portfolio has o= 16% and E(r) = 14.5%. She calculates that using leverage would give her the same standard deviation as the stock fund (22%), if she can get a good borrowing rate. Con a. Assuming she can borrow at the T-Bill (risk-free) rate of 2%, calculate the weights for the investor to create her Complete Portfolio with leverage. (3 points) b. Calculate the Expected Return for this Complete Portfolio, assuming the borrowing rate = 2% (the T-Bill rate). (2 points) LE C. Calculate the maximum interest rate at which the investor would be willing to borrow before she decided to just invest 100% in the Stock fund (assuming the same weights as you calculated in Part a). In other words, calculate the breakeven borrowing rate. Show your work. If you use Solver in Excel, provide a screenshot. (3 points) REN Intel i. Explain or show why this is the maximum rate where the investor would use leverage (not just with math, but what the breakeven borrowing rate means). (2 points) Int Finang Page 11 of 11 1696 words * English (United States) Focus E E . ' - - + 144% df 409 BOMO 2750 ml A OS dtv > sw x P