Suppose that you invest in a stock X which has the following structure:

Event	Price of Stock X
Boom(1/2)	14
Bust(1/2)	8

a) If you buy the stock at the market price of $10, what is the expected rate of return and the risk (measured in standard deviation of the rate of return) of stock X?

b) Now suppose that you buy 2 shares of stock X, after borrowing $10 from a broker at 5% interest rate. What is the expected rate of return of your investment? Remember that your own investment is only $10 after repaying the loan to the broker.

c) What is the risk of your investment on 100% margin?

d) If you want to enjoy 16% rate of return, what is the proper share of investment on margin?