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Correlation between stocks and bonds

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There are two asset classes: stocks and bonds. The expected return to stocks is 12% with a standard deviation of 22%. The expected return to bonds is 5% with a standard deviation of 8%. The correlation between stocks and bonds is 0.80. Assume your utility function is given by: U = E(r) - 2.5σ2 . Given no constraints on investing in stocks or bonds, your utility is highest in which of the following portfolios?

Reference no: EM132406579

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