Suppose You Borrow at the Risk-Free Rate an Amount Equal

Multiple Choice

Suppose you borrow at the risk-free rate an amount equal to your initial wealth and invest in a portfolio with an expected return of 16 percent and a standard deviation of returns of 20 percent. The risk-free asset has an interest rate of 4 percent. Calculate the expected return on the resulting portfolio.

A) 20 percent
B) 32 percent
C) 28 percent
D) 12 percent