Suppose you have $400,000 in cash, and you decide to borrow another $64,000 at a 7% interest
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Suppose you have $400,000 in cash, and you decide to borrow another $64,000 at a 7% interest rate to invest in the stock market. You invest the entire $464,000 in a portfolio J with a 14%
expected return and a 24% volatility.
a. What is the expected return and volatility (standard deviation) of your investment?
b. What is your realized return if J goes up 19% over the year?
c. What return do you realize if J falls by 30% over the year?
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