You choose your portfolio following the advice of the modern portfolio theory. Suppose you had $100000 in cash and you borrowed another $26861 from the bank at the annual risk-free rate of 2%. You invested your cash and the amount you borrowed in a risky portfolio with an annual expected return of 18% and a standard deviation of 25%. What return do you earn if the risky portfolio you invested in goes up by 15% over a year?

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In the context of the Modern Portfolio Theory MPT we can use the concept of leverage to calculate th... View the full answer