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Assume there is a fixed exchange rate between the Euro and U.S. dollar. The expected...

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Finance

Assume there is a fixed exchange rate between the Euro and U.S. dollar. The expected return and standard deviation of return on the U.S. stock market are 16% and 13%, respectively. The expected return and standard deviation on the DAX stock market are 11% and 18%, respectively. The covariance of returns between the U.S. and German stock market is 1.5%. If you invested 130% of your money in the German (DAX) stock market (by shorting the U.S. stock market), the expected return on your portfolio would be:

Multiple Choice

27.00%.

12.05%.

16.45%.

24.10%.

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