Suppose you have $100,000 in cash,, and you decide to borrow another $25,000 at a 6%% interest rate to invest in the stock market.. You invest the entire $125,000 in a portfolio J with a 24% expected return and a 26% volatility
The portfolio weights are 1.25 and -0.25
When finding the volaitility of this portfolio, why cant we calculate the volatility by first calculating the variance e.g. x^2 Var (R2) - 1.25(0.26)^2, which gives us the variance which we can then square root to find our volatility? The answers state otherwise and instead 1.25 is multipled by 0.26 to find the volatility.