Question
Your investment portfolio consists of 10,000 worth of Google stock. Suppose that the risk-free rate is 3%, Google stock has an expected return of 16%
Your investment portfolio consists of 10,000 worth of Google stock. Suppose that the risk-free rate is 3%, Google stock has an expected return of 16% and a volatility of 45%, and the market portfolio has an expected return of 10% and a volatility of 20%. Assume that the CAPM assumptions hold. What alternative investment has the lowest possible volatility while having the same expected return as Google?
A. 186% in the risk-free asset and -86% in the market portfolio
B. +14% in the risk-free asset and +86% in the market portfolio
C. +86% in the risk-free asset and +14% in the market portfolio
D. -86% in the risk-free asset and +186% in the market portfolio
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