Suppose you have $375,000 in cash, and you decide to borrow another $48,750 at a 5% interest rate to invest in the stock market. You invest the entire $423,750 in a portfolio J with a 10% expected return and a 31% volatility.
a. What is the expected return and volatility (standard deviation) of your investment?
b. What is your realized return if J goes up 18% over the year?
c. What return do you realize if J falls by 15% over the year?
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