An Investor Wishes to Construct a Portfolio by Borrowing 30

Multiple Choice

An investor wishes to construct a portfolio by borrowing 30 percent of his initial wealth at the risk-free rate of 3 percent and investing all the money in a stock index. The expected return on the stock index is 12 percent. Calculate the expected return on the portfolio.

A) 14.7 percent
B) 15.6 percent
C) 17.1 percent
D) 18.9 percent
E) 19.7 percent