Concept explainers
Your investment portfolio consists of $15,000 invested in only one stock—Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an expected return of 10% and a volatility of 18%. Under the
- a. What alternative investment has the lowest possible volatility while having the same expected return as Microsoft? What is the volatility of this investment?
- b. What investment has the highest possible expected return while having the same volatility as Microsoft? What is the expected
return of this investment ?
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