You Buy an Asset for $2,500

question 60

Essay

You buy an asset for $2,500. The asset will return $3,300 half of the time and $2,700, the other half. The expected return is 20% (a gain of $500) and the standard deviation is 12% ($300). How would using $1,250 of borrowed funds change the expected return and standard deviation specifically?

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Definitions:

Short-Term Note

A debt instrument with a maturity of less than one year, used by companies to finance short-term obligations.

Legal Fees

Charges incurred for legal services provided by attorneys or law firms.

Delinquent Taxes

Taxes that have not been paid by the due date, often incurring penalties and interest.

Salvaged Materials

Items or resources recovered from discarded or obsolete goods that can be reused or repurposed in production.