Question 7 (1 point) Suppose your investment budget is $100,000. In addition, you borrow an additional...
Question 7 (1 point)
Suppose your investment budget is $100,000. In addition, you borrow an additional $20,000 and invest the total available funds of $120,000 in stock A. If the expected rate of return of stock A is 9%, and you borrow at 5%, what is your expected portfolio return?
Question 7 options:
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11.8% |
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9.8% |
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14.6% |
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None of these |
Homework Answers
The expected portfolio return is computed as shown below:
= (Amount invested in stock A / investment budget) x return on stock A - (Amount borrowed / investment budget) x borrowing rate
= ($120,000 / $ 100,000) x 0.09 - ($ 20,000 / $ 100,00) x 0.05
= 9.8%
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