## Answers

Alternate Portfolio can be created by **Borrowing at risk free rate and investing such borrowed amount alongwith our own money into market portfolio.** This will result in increased leverage and hence, increased return and volatility.

Expected Return = Same as Facebook = 18%

Let weight of investment be W. So weight of borrowings = 1-W

Portfolio Return = (Return on investment×Weight of Investment) + (Rate of borrowing×Weight of borrowing)

18 = (11 × W) + [2 × (1 - W)]

18 = 11W + 2 - 2W

16 = 9W

Therefore, W = Weight of Investment = **1.777** and Weight of Borrowing = 1-1.777 = -**0.777**

Therefore, with this Portfolio Return will be (11×1.777)+(2×-0.777) = **18%**

**Portfolio Volatility =** (Volatility of Investment×Weight of Investment) + (Volatility of Borrowing×Weight of Borrowing)

= (13×1.777) + (0×-0.777) = **23.101%**

**Therefore, Correct Option is (B) 23.1%**

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