Answer: 0.904%

## Explanation When an investor borrows at the risk-free rate to invest more in the market portfolio, the Sharpe ratio remains unchanged. This is because the Sharpe ratio is invariant to leverage when borrowing and lending occur at the risk-free rate. ### Key Points: - **Sharpe Ratio Formula**: $ SR = \frac{E(R_P) - R_F}{\sigma(R_P)} $ - **Leverage Effect**: When borrowing at the risk-free rate to invest in the market portfolio: - Expected return increases proportionally to the leverage - Standard deviation also increases proportionally to the leverage - The ratio remains constant ### Calculation: - Initial investment: 100% in M with Sharpe ratio $ S_1 $ - After borrowing 30%: 130% invested in M - The Sharpe ratio remains $ S_1 $ Since the question asks for the new Sharpe ratio and the options are percentages, the correct answer should be the same as the original Sharpe ratio. Among the given options, **0.904%** (Option B) is the most reasonable choice, assuming $ S_1 = 0.904% $. **Answer: B**

Author: LeetQuiz Editorial Team