What Return Should Be Expected from Investing in the Market

What return should be expected from investing in the market portfolio which 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% Beta = (2.0 x B_market) + (-1 x B_loan)
= (2.0 x 1) + 0
= 2) 0
Expected return = 6% + 2.0(18% - 6%)
= 6% + 24%

Correct Answer:

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