You have $1000 to invest. The risk free rate is 6%. The market portfolio has expected return of 15% and standard deviation of 20%.

Part a. What is the mean and standard deviation of your investment if you invest $500 in the risk-free asset and $500 in the market portfolio?

Part b. Your sister also has $1000 to invest, but she wants to borrow another $1000 in order to make investment of $2000 in the market portfolio M. What will be the mean and standard deviation of her portfolio's return?

Part c. Which portfolio is better? Yours or your sister's?

You have $1000 to invest. The risk free rate is 6%. The market portfolio has expected return of 15% and standard deviation of 20%. Parta. What is the mean and standard deviation of your investment if you invest $500 in the risk-free asset and $500 in the market portfolio? Part b. Your sister also has 1000 to invest, but she wants to borrow another $1000 in order to make investment of $2000 in the market portfolio M. What will be the mean and standard deviation of her portfolio's return Porte. Which portfolio is better? Yours or your sister's 14 15 16 17 Amount to invest Risk-free rate, E(TM) CML WITH LEVERAGE $ 1,000 6% 18 15% OM 20% 19 20 21 Section a. Investment proportions $ $ Investment in risk-free Investment in market Expected portfolio return Portfolio standard deviation 500 500 Section b. 22 23 24 25 26 27 28 29 30 31 32 33 34 35 Investment proportions Investment in risk-free Investment in market Expected portfolio return Portfolio standard deviation $ (1,000) $ 2,000 Section c. 36 37