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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Definitions:

Welfare Class

A social group consisting of people who are receiving government assistance for the poor.

Relative Poor

A condition where individuals or families have significantly less income or resources compared to the average in their society, making them relatively poor.

Labor Force

The total number of workers, including both the employed and those seeking employment, within an economy.

Income Inequality

The unequal distribution of income across various participants in an economy.