Suppose You Borrow at the Risk-Free Rate an Amount Equal

question 4

Multiple Choice

Suppose you borrow at the risk-free rate an amount equal to your initial wealth and invest in a portfolio with an expected return of 20% and a standard deviation of returns of 16%.The risk-free asset has an interest rate of 4%.Calculate the standard deviation of the resulting portfolio.

• A)28%
• B)40%
• C)32%
• D)36%

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Definitions:

T-test

A statistical method employed to assess if there's a significant difference between the average values of two distinct groups.

Critical Value

A point on the test distribution that is compared with the test statistic to determine whether to reject the null hypothesis.

Alpha

The level of significance in statistical testing, representing the probability of rejecting the null hypothesis when it is actually true.

Standard Error

A statistical measure that estimates the accuracy with which a sample distribution represents a population by using standard deviation and sample size.