Question: Suppose you have $100,000 in cash, and you decide to borrow another $15,000 at a 4% interest rate to invest in the stock market. You invest the entire $115,000 in a portfolio J with a 15% expected return and a 25% volatility.
a. What is the expected return and volatility (standard deviation) of your investment?
b. What is your realized return if J goes up 25% over the line?
c. What return do you realize if J falls by 20% over the year?