(CML with leverage) You have $1,000 to invest. The risk-free rate is rf = 6%.

The market portfolio has expected return E(rM) = 15% and σM = 20%.

a. What is the mean and standard deviation of your investment if you invest $500 in the risk-free asset and $500 in the market portfolio?

b. Your sister also has $1,000 to invest, but she wants to borrow another

$1,000 in order to make an investment of $2,000 in the market portfolio M. What will be the mean and standard deviation of her portfolio return?

c. Which portfolio is better, yours or your sister’s?