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:

Systematic Risk

The inherent risk associated with the overall market or economy that cannot be eliminated through diversification.

Expected Return

The anticipated return on an investment, calculated as the weighted average of all possible returns with the probabilities of their occurrence.

Recessionary Period

denotes a time of economic decline when the economy reduces its activities significantly, typically marked by decreases in spending and increases in unemployment.

Economic Boom

A period of significantly increased economic activity characterized by high growth rates in GDP and employment.