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

1. If you buy the stock at the market price of $10, what is the expected rate of return and the risk (measured in std.dev of the rate of return) of stock X?

2) 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.

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

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

Solve with excel or by hand