1. Suppose you managed a $1 million investment portfolio described in Question 1: Ep = 10% and risk of p = 4%. Suppose the investment fund borrows $500,000 at 5% to leverage the fund's portfolio investment (i.e., wp = 1.5).

a. What would be the dollar return and rate of return from the leveraged investment if the portfolio earns its expected return of 10%?

b. What would be the fund's dollar return and rate of return from the leveraged investment if the rate of return on the portfolio were one standard normal deviation above its expected return (z = 1)?

c. What would be the fund's dollar return and rate of return from the leveraged investment if the rate of return on the portfolio were one standard normal deviation below its expected return (z = 1)?

d. Show the distributions of returns for the portfolio and the above leveraged portfolio for z-scores of 2, 1, 0, 1, and 2.