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The risk-free rate is 5%. A risky portfolio has an expectedreturn of 10% and a standard deviation of return of 20%. If youwant to form
The risk-free rate is 5%. A risky portfolio has an expectedreturn of 10% and a standard deviation of return of 20%. If youwant to form a complete portfolio from these two assets, and youwant this portfolio to have an expected return greater than 5% butless than 10% what must you do? Assume that all borrowing andlending can be done at the risk-free rate.
a. Lend at the risk free rate
b. borrow at the risk free rate
c. short sell the risky portfolio
d. there is no way to achieve an expected return greater
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