Your investment portfolio consists of $$$$18$ comma $000$ invested in only one stocklong dashAmazon. Suppose the$$ risk$-$free rate is $4\%,$ Amazon stock has an expected return of $13\%$ and a volatility of $44\%,$ and the market portfolio has an expected return of $8\%$ and a volatility of $18\%.$ Under the CAPM$$ assumptions,

a$.$ What alternative investment has the lowest possible volatility while having the same expected return as$$ Amazon? What is the volatility of this$$ investment?

b$.$ What investment has the highest possible expected return while having the same volatility as$$ Amazon? What is the expected return of this$$ investment?

Hint$$: Make sure to round all intermediate calculations to at least five decimal places.$$

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Part $1$

a$.$ What alternative investment has the lowest possible volatility while having the same expected return as$$ Amazon?

To create an alternative investment that has the lowest possible volatility while having the same expected return as$$ Amazon, we use the following$$ strategy:

$$Sell:

$$$

$$

$10,000$ worth of Amazon stock. $($Round to the nearest$$ dollar.$)$

$$Borrow:

$$$

$$

enter your response here at the$$ risk$-$free rate. $($Round to the nearest$$ dollar.$)$

$$Buy:

$$$

$$

enter your response here worth of the market portfolio.$($Round to the nearest$$ dollar.$)$

$$Buy:

$$$

$$

enter your response here worth of the$$ risk$-$free investment. $($Round to the nearest$$ dollar.$)$

Hint: Make sure to round all intermediate calculations to at least five decimal places.Hint: Make sure to round all intermediate calculations to at least five decimal places.Hint: Make sure to round all intermediate calculations to at least five decimal places.Hint: Make sure to round all intermediate calculations to at least five decimal places.

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