What Return Should Be Expected from Investing in the Market

question 102

Multiple Choice

What return should be expected from investing in the market portfolio which is expected to yield 18% if the investment includes all of the investor's funds plus 100% of additional funds borrowed at the risk-free rate of 6%?

• A)18.6%
• B)19.6%
• C)21.6%
• D)30.0% Beta = (2.0 x B_market) + (-1 x B_loan)
• = (2.0 x 1) + 0
• = 2)0
• Expected return = 6% + 2.0(18% - 6%)
• = 6% + 24%

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