Explore BrainMass

Explore BrainMass

    Return & Volatility

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    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?

    © BrainMass Inc. brainmass.com June 3, 2020, 10:41 pm ad1c9bdddf
    https://brainmass.com/business/beta-and-required-return-of-a-project/return-volatility-244078

    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.

    $2.19

    ADVERTISEMENT