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# Return & Volatility

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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?

#### Solution Preview

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