The Market Portfolio Has an Expected Return of 18% and the Risk-Free

question 59

Multiple Choice

The market portfolio has an expected return of 18% and the risk-free rate is 6%.An investor borrows $100 at the risk-free rate and invests this and a further $100 of his own in the market portfolio.What is his expected return?

• A) 18.6%
• B) 19.6%
• C) 21.6%
• D) 30.0%

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Definitions:

Accruals

Accounting method that records revenues and expenses when they are earned or incurred, regardless of when cash transactions occur, reflecting the economic activity more accurately.

Employee Benefits

All forms of consideration given by an entity in exchange for service rendered by employees or for the termination of employment.

Insurance Contracts

Contracts under which one party (the insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specific uncertain future event adversely affects the policyholder.

Warranty Obligations

Liabilities recognized by a company to cover the costs of repairs or replacements for products sold within a specified warranty period.