Sam has $100. He intends to invest $30 in Asset A and $70 in Asset B
Given the following information about these assets:
The annual return on Asset A is a random variable with expected value 7% p.a. and standard deviation 14%.
The annual return on Asset B is a random variable with expected value 10% p.a. and standard deviation 20%.
Assuming that these two assets have independent returns.
Question 6 Not yet saved Marked out of 0.50 Flag question Sam has $100 and he has decided to borrow an additional $300. The interest rate on the loan is 6% p.a. and he must repay the loan with interest at the end of the year He will invest the entire amount as follows: $120 in Asset A and $280 in Asset B (Asset A and Asset B are the same as the previous questions). What is the expected value of his wealth at the end of the year (after repaying the loan)? Please enter your answer rounded to the nearest cent, but without dollar signs or commas. Answer: Question 7 Not yet saved Marked out of 1.00 Referring to the previous question (leveraged portfolio), what is the standard deviation of Sam's wealth at the end of the year (after repaying his loan)? Please enter your answer rounded to the nearest cent, but without dollar signs or commas. Flag question Answer: Question 8 Not yet saved Marked out of 0.50 Referring to the previous question, with the leveraged portfolio: Assuming that the returns on Asset A and B are independent and Normally distributed, what is the probability that Sam's wealth at the end of the year, after repaying the loans, will be less than $100? Please enter your answer accurate to 5 decimal places. Flag question Answer: Question 9 Not yet saved Marked out of 0.50 Referring to the previous question, with the leveraged portfolio: Assuming that the returns on Asset A and Asset B are independent and Normally distributed, what is the probability that Sam's wealth at the end of the year, after repaying the loans, will be more than $120? P Flag question Please enter your answer accurate to 5 decimal places. Answer: Question 10 Not yet saved Suppose that an investor can invest in a specified portfolio with expected returns 6% and standard deviation 12%. Marked out of 0.50 P Flag question The investor can borrow to invest, paying interest at rate j% for a one year loan. Is the following statement True of False? "Borrowing to invest will lead to a higher expected wealth, but only ifj% is greater than 6%". Select one: O True O False
