Suppose that in January the outcomes for the rates of return on Securities H and B are .09 and .15, respectively.
(a) If an investor had formed his portfolio (worth a total of $1,000) by allocating 60% of his funds to Security H (XH=.60) and 40% of his funds to Security B (XB=.40), what is the rate of return on his portfolio for January?
(b) Suppose the investor had constructed his portfolio by taking a short position in Security H equal to 20% of his initial funds. Calculate the rate of return on the portfolio for January.
(Remember, since Securities H and B are the only securities in his portfolio, we must have XH+XB=1.)