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Find out the highest possible expected return

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Reference no: EM132652419

Your investment portfolio consists of $13,000 invested in only one stock -- Amazon. Suppose the risk-free rate is 4%, Amazon stock has an expected return of 12% and a volatility of 42%, and the market portfolio has an expected return of 9% and a volatility of 22%. Under the CAPM assumptions,

a. What alternative investment has the lowest possible volatility while having the same expected return as? Amazon? What is the volatility of this investment? (Round to two decimals in percent)

b. What investment has the highest possible expected return while having the same volatility as Amazon? What is the expected return of this investment? (Round to two decimals in percent)

For both parts above, state clearly the dollar amount you invest in the market portfolio and the dollar amount you invest/borrow in the risk-free asset.

Reference no: EM132652419

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