Python Exercises for Corporate Finance and Risk Management

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Question: 87

Consider a portfolio S with expected return (rs) of 15% and a standard deviation (sd) of 16%. Consider a risk-free asset (T-Bill) with interest rate (rf) of 5%. Compute the correct value of expected return on a portfolio (rp) with 100% borrowings (same as original wealth) at risk-free rate (rf) and investing the aggregate (double), i.e., 200% amount in portfolio S.


Since we are investing double amount in the portfolio and half of the amount is borrowing on which we have to pay interest that risk free rate.

  • We will use "wb" for borrowings and "wi" for investment proportion.
  • Define a function "expected_return" in python which will depend on investement proportion

def return_on_portfolio(investment_proportion,interest_rate,expected_return,borrowings)`:

rs = expected_return wi = investment_proportion wb = borrowings rf = interest_rate return result

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