Question
Your investment portfolio consists of $10,000 worth of Google stock. Suppose that the risk-free rate is 4%, Google stock has an expected return of 14%
Your investment portfolio consists of $10,000 worth of Google stock. Suppose that the risk-free rate is 4%, Google stock has an expected return of 14% and a volatility of 35%, and the market portfolio has an expected return of 12% and a volatility of 18%. Assume that the CAPM assumptions hold. What alternative investment has the lowest possible volatility while having the same expected return as Google?
A) -25% in the risk-free asset and +125% in the market portfolio
B) -20% in the risk-free asset and +120% in the market portfolio
C) 0% in the risk-free asset and +100% in the market portfolio
D) 20% in the risk-free asset and +80% in the market portfolio
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