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 100% of additional funds borrowed at the risk-free rate of 6%?
A) 18.6%
B) 19.6%
C) 21.6%
D)30.0%

Question

Quizplus · Accepted Answer

β_Portfolio = (2 × β_market) + (-1 × β_loan) = (2 × 1) + 0 = 2Expected return = 6% + 2(18% - 6) = 30%

What Return Should Be Expected from Investing in the Market