Your investment portfolio consists of $15,000 invested in only one stock-Microsoft. Supposethe risk-free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of40%, and the market portfolio has an expected return of 10% and a volatility of 18%. Underthe CAPM assumptions,
a.What alternative investment has the lowest possible volatility while having the sameexpected return as Microsoft? What is the volatility of this investment?
b.What investment has the highest possible expected return while having the samevolatility as Microsoft? What is the expected return of this investment
To create a alternative investment that has the lowest possible volatility while having the same expected return as Microsoft, we us the following strategy:
Sell a)___work of mircosoft
Borrow b) ____at the risk free rate
Buy c) ____worth of the market portfolio
Buy d)____work of the risk free investment