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23. You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should __________. a. invest $125,000 in the risk-free asset b. invest $375,000 in the risk-free asset c. borrow $125,000 d. borrow $375,000

Respuesta :

abiolataiwo2015

If you wish to earn a 22% return, you should borrow $375,000.

First step is to calculate the proportion of the investment

Using this formula

Rc = yRp+(1-y)Rf,

Where:

Rc=Return of return on the complete portfolio=.22

y=Proportion of the investment budget?

Rp=Return on risky portfolio=.16

Rf= Risk-free rate=.08

Let plug in the formula

0.22 = y(0.16)+(1-y)0.08,

y = 1.75

1-y = -0.75

Second step is to calculate the amount to borrow

0.75×$500,000

=$375,000

Based on the above calculation the negative sign indicate borrowing, therefore the amount to borrow is $375,000.

Learn more here:

https://brainly.com/question/15281534

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