What Return Should Be Expected from Investing in the Market

question 110

Multiple Choice

What return should be expected from investing in the market portfolio that is expected to yield 18% if the investment includes all of the investor's funds plus 30% of additional funds borrowed at the risk-free rate of 6%?

• A) 18.6%
• B) 19.6%
• C) 21.6%
• D) 24.0%

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Definitions:

Bond Premium

The additional amount paid over the face value of a bond, reflecting market interest rates lower than the bond's coupon rate.

Liability

Financial obligations or debts owed by a company to external parties, such as loans, accounts payable, or mortgages.

Annual Amortization

The process of spreading out a loan into a series of fixed payments over a period, with each payment covering part of the principal amount and interest.

Bond Discount

The situation in which a bond is sold for less than its par (face) value, benefiting investors with higher interest rates than current market rates.