Expected return and standard deviation for portfolio

Reference no: EM1310761

Q1) Diane has $2500 to invest. Expected return on market portfolio is 11% with standard deviation of =15%. Compute the expected return and standard deviation for portfolio if Diane borrows the extra $1000 at risk free rate of 4% and invest everything in market portfolio.

a) ER=19.40% SD=15.40%
b) ER=15.40% SD=19.40%
c) ER=13.80% SD=21.00%
d) ER=21.00% SD=13.80%

Q2) Comptroller of agency has observed that, given rate at which expenses are going up faster than reimbursements, $40,000 per year benefits stream must be reduced at rate of 2% per year starting with present year (Year 1). Recompute benefit-cost ratio by using 4% discount rate after taking the comptroller's recommendation into account.

Reference no: EM1310761

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