What return should be expected from investing in the market portfolio that is expected to yield 18% if the investment includes all of the investor's funds plus 30% of additional funds borrowed at the risk-free rate of 6%? A)18.6% B)19.6% C)21.6% D)24.0% Beta = (1.3 x B_market) + (-1 x B_loan) = (1.3 x 1) + 0 = 1)3 Expected return = 6% + 1.3(18% - 6%) = 6% + 15.6%

Question

Quizplus · Accepted Answer

The expected return is calculated using the formula: Expected return = Risk-free rate + Beta * (Market return - Risk-free rate). Here, Beta is 1.3, the market return is 18%, and the risk-free rate is 6%. Thus, the expected return is 6% + 1.3 * (18% - 6%) = 21.6%.

What Return Should Be Expected from Investing in the Market