Consider an investment that pays off $7,000 or $15,000 per $10,000 invested with equal probability. Suppose you have $10,000 but are willing to borrow to increase your expected return. What would happen to the expected value and standard deviation of the investment i you borrowed an additional $10,000 and invested a total of $20,000? What if you borrowed $20,000 to invest a total of $30,000?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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2. Consider an investment that pays off $7,000 or $15,000 per $10,000 invested with equal
probability. Suppose you have $10,000 but are willing to borrow to increase your expected
return. What would happen to the expected value and standard deviation of the investment if
you borrowed an additional $10,000 and invested a total of $20,000? What if you borrowed
$20,000 to invest a total of $30,000?
Transcribed Image Text:2. Consider an investment that pays off $7,000 or $15,000 per $10,000 invested with equal probability. Suppose you have $10,000 but are willing to borrow to increase your expected return. What would happen to the expected value and standard deviation of the investment if you borrowed an additional $10,000 and invested a total of $20,000? What if you borrowed $20,000 to invest a total of $30,000?
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