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 20 percent and a standard deviation of returns of 16 percent. The risk-free asset has an interest rate of 4 percent. Calculate the standard deviation of the resulting portfolio.

A) 28 percent
B) 40 percent
C) 32 percent
D) 36 percent