What Return Should Be Expected from Investing in the Market

question 120

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% Beta = (1.3 x B_market) + (-1 x B_loan)
• = (1.3 x 1) + 0
• = 1)3
• Expected return = 6% + 1.3(18% - 6%)
• = 6% + 15.6%

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