Answer:
c. borrow $50,000 at the risk-free rate
Explanation:
Options are: "invest $100,000 in the risk-free asset, borrow $25,000 at the risk-free rate, borrow $50,000 at the risk-free rate, invest $125,000 in the risk-free asset"
Standard Deviation of the portfolio = Weight of Risky assets * Standard Deviation of risky assets
30% = Weight of Risky assets * 20%
Weight of Risky assets = 30% / 20%
Weight of Risky assets = 1.50
Weight of Risk Free Assets = 1 - 1.50
Weight of Risk Free Assets = -0.50
Borrow from risk assets = 0.50 * $100,000
Borrow from risk assets = $50,000
Hence, If we want the standard deviation of our investment to be 30%, we must borrow $50,000
