You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045.
-A portfolio that has an expected outcome of $114 is formed by
A)Investing $100 in the risky asset.
B)Investing $80 in the risky asset and $20 in the risk-free asset.
C)Borrowing $46 at the risk-free rate and investing the total amount ($146) in the risky asset.
D)Investing $43 in the risky asset and $57 in the riskless asset.
E)Such a portfolio cannot be formed.

Question

Quizplus · Accepted Answer

To achieve an expected outcome of $114, the portfolio must have an expected return of 14%. By borrowing $46 at the risk-free rate and investing $146 in the risky asset with an expected return of 11%, the portfolio can achieve this expected return.

You Invest $100 in a Risky Asset with an Expected