You Have $500,000 Available to Invest

Multiple Choice

You have $500,000 available to invest. The risk-free rate, as well as your borrowing rate, is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should ________.

A) invest $125,000 in the risk-free asset
B) invest $375,000 in the risk-free asset
C) borrow $125,000
D) borrow $375,000