You have $120,000 of cash. The riskless interest rate is 4%. The market index fund has an expected return of 10% and a standard deviation of 20%. A and B below are unrelated.
a. You decide to borrow $60,000 at the riskless interest rate, and you then invest all $180,000 ($120,000 of your cash and $60,000 borrowed cash) in the market index fund. What is the expected return and standard deviation of this investment portfolio?
b. You decide to invest your $120,000 as follows: $48,000 invested in the riskless asset (riskless interest rate), and $72,000 in the market index portfolio. What is the expected return and standard deviation of this investment portfolio?