Question
An investor holds an efficient portfolio with a mean return of 16% and a standard deviation of 18%. Assume that the risk-free rate is 6%,
An investor holds an efficient portfolio with a mean return of 16% and a standard deviation of 18%. Assume that the risk-free rate is 6%, that the mean return on the market portfolio is 14%, and that the CAPM holds. Answer the following questions (show all the details of your calculations and display the results with four decimal places):
i. What is the beta of this portfolio?
ii. Suppose that the investors total wealth is 100, which is invested entirely in market shares. Considering your answer in (i) above, is this investor borrowing or lending and how much? Explain your answer.
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