You want to buy $20,000 worth of shares in Tootsie Roll Industries Inc.on margin,but you only have $10,000 of your own money to invest.The remaining $10,000 is borrowed by issuing T-Bills; assume the cost of borrowing is the risk-free rate.What is the portfolio weight for the risk free asset (T-Bills)?
A) -1.00
B) -0.50
C) 1.00
D) 0.50
E) 2.00

Question

Quizplus · Accepted Answer

w_i = 11ea7fdb_fc0a_9adb_a768_f7b532ac5f58_TB2902_11 You issued $10,000 of T-Bills, so you are short T-Bills. Short positions are represented by negative portfolio weights. w_i = 11ea7fdb_fc0a_9adc_a768_1bf50bdc497a_TB2902_11 = -1.0

You Want to Buy $20,000 Worth of Shares in Tootsie