If you borrow money at the RFR and invest the money in the market portfolio, the rate of return on your portfolio will be higher than the market rate of return.

Question

Quizplus · Accepted Answer

This is because the RFR (risk-free rate) is typically lower than the expected rate of return on the market portfolio, which reflects higher risk. By borrowing at a lower rate and investing at a higher rate, you can potentially earn a higher return than the market average. However, it is also important to consider the costs and risks of borrowing, such as interest payments and the potential for losses if the market performs poorly.

If You Borrow Money at the RFR and Invest the Money