You have $ 95 000 to invest. You choose to put $ 145000 into the market...
You have $ 95 000 to invest. You choose to put $ 145000 into the market by borrowing $ 50000. a. If the risk-free interest rate is 5 % and the market expected return is 12 % what is the expected return of your investment? b. If the market volatility is 10 %, what is the volatility of your investment?
Homework Answers
Weight % invested in Market = 145,000/95,000 = 1.5263
Weight % invested in Risk Free Asset = -0.5263
So,
Expected Return = 1.5263(0.12) - 0.5263(0.05)
Expected Return = 15.68%
Standard Deviation = (1.5263)(0.10)
Standard Deviation = 15.26%
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