You have $200,000 of cash. The riskless interest rate is 3%. The market index fund has an
Question:
You have $200,000 of cash. The riskless interest rate is 3%. The market index fund has an expected return of 10% and a standard deviation of 20%. A and B below are unrelated. a. You decide to invest your $200,000 as follows: $60,000 invested in the riskless asset (riskless interest rate), and $140,000 in the market index portfolio. Calculate the expected return and standard deviation of this investment portfolio? b. You decide to borrow $100,000 at the riskless interest rate, and you then invest all $300,000 ($200,000 of your own cash and the $100,000 borrowed cash) in the market index fund. Calculate the expected return and standard deviation of this investment portfolio?
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston