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%

Question

Quizplus · Accepted Answer

β_Portfolio = (2 × β_market) + (−1 × β_loan) = (2 × 1) + 0 = 2Expected return = 6% + 2(18% − 6) = 30%

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