Suppose You Borrow at the Risk-Free Rate an Amount Equal

question 46

Multiple Choice

Suppose you borrow at the risk-free rate an amount equal to your initial wealth and invest in a portfolio with an expected return of 20% and a standard deviation of returns of 16%. The risk-free asset has an interest rate of 4%; calculate standard deviation of the resulting portfolio:

• A) 28%
• B) 40%
• C) 32%
• D) none of the above

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