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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Definitions:

Natural Selection

The mechanism of evolution proposed by Charles Darwin; the tendency of organisms that have favorable adaptations to their environment to survive and become the parents of the next generation. Evolution occurs when natural selection results in changes in allele frequencies in a population. Compare with artificial selection.

Organisms

Living beings that grow, reproduce, respond to external stimuli, and maintain homeostasis.

Hereditary Information

Genetic material passed from parents to offspring, determining inherited traits and characteristics.

Genes

Units of heredity made up of DNA, responsible for guiding the development and functioning of organisms.