Suppose your optimal risky portfolio has an expected return of 6.5% and standard deviation of 6%.You can also invest in a risk-free asset with rf= 3.5%. Your risk aversion A= 1/15.
Q: Suppose when you are buying on margin, your broker charges you a 4% interest rate, instead of the risk-free rate. What is your expected return for your complete portfolio, using the optimal allocation weight of 1.25?