Computation of expected return of your portfolio

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Reference no: EM1312428

Computation of expected return and the volatility of your portfolio

Suppose you have $50,000 in cash and you'd like to take advantage of the broad undervaluation in the equity market by investing heavily in stocks. Your plan is to borrow another $50,000 at an interest rate of 5% per year for one year and to invest the entire $100,000 in the S&P500. Historically S&P 500 has produced an average return of 15% per year at a volatility of 25% per year.

What is the expected return and the volatility of your portfolio?

a. E(r) = 25% ; Sigma(r) = 25%

b. E(r) = 15% ; Sigma(r) = 12.5%

c. E(r) = 15% ; Sigma(r) = 25%

d. E(r) = 15% ; Sigma(r) = 50%

e. E(r) = 25% ; Sigma(r) = 50%

Reference no: EM1312428

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