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Suppose your own wealth was $300. In addition, you have borrowed $100 at a risk-free rate of 3%. Then you spent all your own wealth
Suppose your own wealth was $300. In addition, you have borrowed $100 at a risk-free rate of 3%. Then you spent all your own wealth and all the amount borrowed on the purchase of Stock S, which has an expected return of 20%.
a. What is the portfolio weight on Stock S?
b. What is the portfolio weight on risk-free asset?
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