# Return & Volatility

Suppose you have $100,000 in cash, and you decide to borrow another $15,000 at a 4% interest rate to invest in the stock market. You invest the entire $115,000 in a portfolio J with a 15% expected return and a 25% volatility.

a. What is the expected return and volatility (standard deviation) of your investment?

b. What is your realized return if J goes up 25% over the line?

c. What return do you realize if J falls by 20% over the year?

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#### Solution Preview

Please see the attached file for answers:

Suppose you have $100,000 in cash, and you decide to borrow another $15,000 at a 4% interest rate to invest in the stock market. You invest the entire $115,000 in a portfolio J with a 15% expected return and a 25% volatility.

a. What is the expected return and volatility (standard deviation) of your investment?

Borrowing is risk free, hence volatility (standard deviation) of bprrowing =0

Therefore,

expected ...

#### Solution Summary

The expected return and volatility (standard deviation) of an investment in stocks using cash and borrowings have been calculated.