An investment, which is worth 26,800 dollars and has an expected return of 4.28 percent, is expected to pay fixed annual cash fl
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Answer:
The expected return that IMI can provide subject to Johnson's risk constraint is 8.5%
Explanation:
Capital Market Line (CML)
Expected return on the market portfolio, E() = 12 %
Standard deviation on the market portfolio, σ = 20%
Risk-free rate, = 5%
E() =
+ [ E(
) -
] × ( σ
÷ σ
)
= 0.05 + [ 0.12 - 0.05] × (0.10 ÷ 0.20)
= 8.5%