Question
(b) Assume the tangent portfolio on the capital market line has an expected return of 10% and a standard deviation of 15%. If an investor
(b) Assume the tangent portfolio on the capital market line has an expected return of 10% and a standard deviation of 15%. If an investor invests 20% of their wealth in the risk free asset and 80% in the tangent portfolio, what will be the expected return and standard deviation of this investment (assume the risk free rate is 3%)? (4 marks)
(c) Using the information given in (b) what is the expected return and standard deviation for an investment on the capital market line where the investor borrows an amount equal to 20% of their wealth in order to invest 120% of their initial wealth in the tangent portfolio? (4 marks)
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