problem: Assume you have 50,000 dollars in cash and you would like to take advantage of the broad undervaluation in the equity market by investing heavily in stocks. Your plan is to borrow another 50,000 dollars at an interest rate of five percent per year for one year and to invest the entire 100,000 dollar in the S&P 500. Historically S&P 500 has constructed an average return of 15 percent per year at a volatility of 25 percent per year.
Determine the expected return & the volatility of your portfolio?
[A] E(r) = 15% ; Sigma(r) = 25%
[B] E(r) = 15% ; Sigma(r) = 50%
[C] E(r) = 25% ; Sigma(r) = 50%
[D] E(r) = 25% ; Sigma(r) = 25%
[F] E(r) = 15% ; Sigma(r) = 12.5%