Suppose that the risk-free rate is 6 percent and the expected return on the market portfolio is
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Question:
Suppose that the risk-free rate is 6 percent and the expected return on the market portfolio is 15 percent. An investor with $1.5 million to invest wants to achieve a 25 percent return on a
portfolio combining the risk-free asset and the market portfolio. Calculate how much this
investor would need to borrow at the risk-free rate in order to establish this target expected
return. Provide your final answers up to two decimal points.
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