Assume there is a fixed exchange rate between the Euro and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 16% and 13%, respectively. The expected return and standard deviation on the DAX stock market are 11% and 18%, respectively. The covariance of returns between the U.S. and German stock market is 1.5%.

If you invested 130% of your money in the German (DAX) stock market (by shorting the U.S. stock market), the expected return on your portfolio would be:

Multiple Choice

12.05%.

16.45%.

27.00%.

24.10%.