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  3. the portfolio alpha has an expected return of 18.5

The portfolio Alpha has an expected return of 18.50% and risk of 60%. The portfolio...

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Accounting

The portfolio Alpha has an expected return of 18.50% and risk of 60%. The portfolio Gamma has an expected return of 11.75% and risk of 30%. The risk of market portfolio is 40%. Ms. Investor would like to create the portfolio Delta by utilizing the risk free rate and the market portfolio. However, she is interested in earning higher return than the one given by the market portfolio. She has her own wealth of $10,000 for the investment purpose. From her broker, she can borrow additional $4,000 at the risk free rate. Assume that the Capital Asset Pricing Model holds and Ms. Investor utilizes her maximum borrowing capacity, what are the expected return and risk of the portfolio Delta? [Hint: This problem is similar to Problem # 4 of Homework 7. Only difference is in the computation of weights.]

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