You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. A portfolio that has an expected outcome of $115 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 $43 at the risk-free rate and investing the total amount ($143) 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

The expected outcome of $115 from an initial investment of $100 implies a 15% return. By borrowing $43 at the risk-free rate and investing a total of $143 in the risky asset with an expected rate of return of 0.12, the portfolio's expected value aligns with achieving the desired outcome.

You Invest $100 in a Risky Asset with an Expected