What Return Should Be Expected from Investing in the Market

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%

Correct Answer:

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