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Assuming there is ONE risk factor, the interest rate (IR) risk factor. Investors can borrow at...

Assuming there is ONE risk factor, the interest rate (IR) risk factor. Investors can borrow at the risk-free rate rf of 3%. Portfolio (A) is well-diversified with the risk-return profile below. If an investor wants to profit $10,000 from a net-zero portfolio, constructed with Portfolio A, IR portfolio, and the risk-free rate. How much does he need to borrow/lend at the risk-free rate?

β

E(R)-rf

Portfolio (A)

1.2

8%

Interest Rate Risk Factor Portfolio

1.0

6%

Borrow $55,556

Lend $55,556

Borrow $250,000

Lend $250,000

None of the above
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