You saw an opportunity to invest in a new security (A) with excellent growth potential. In the
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Question:
You saw an opportunity to invest in a new security (A) with excellent growth potential. In the hope of investing more than you had, which was only $1,000, you sold another security (B) short with an expected rate of return of 5 per cent. The total amount sold short was $5,000, and the total amount invested in the growth security,which has an expected return of 25 per cent, was therefore $6,000. Ignoring margin requirements, calculate the expected rate of return on this portfolio. What can you conclude about your decision to short sell security B?
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