Your investment portfolio consists of $15,000 invested in only one stock-Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and standard deviation of 40%, and the market portfolio has an expected return of 10% and standard deviation of 18%. Suppose you determine to make investment in market portfolio and risk-free assets. What investment has the highest possible expected return while having the same volatility as Microsoft? What is the expected return of this investment?

Your investment portfolio consists of $15,000 invested in only one stock-Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and standard deviation of 40%, and the market portfolio has an expected return of 10% and standard deviation of 18%. Suppose you determine to make investment in market portfolio and risk-free assets. What investment has the highest possible expected return while having the same volatility as Microsoft? What is the expected return of this investment?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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