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A two-asset portfolio's risk and return are provided in the following table. European Bond Weight U.S. Stock Weight Portfolio Standard Deviation Portfolio Rate of Return

A two-asset portfolio's risk and return are provided in the following table.

European Bond Weight U.S. Stock Weight Portfolio Standard Deviation Portfolio Rate of Return
100% 0% 5% 4%
80% 20% 4% 5%
60% 40% 3% 6%
40% 60% 4% 7%
20% 80% 5% 8%
0% 100% 6% 9%

For an investor who considers only these two classes of assets and is willing to take risk up to a standard deviation of 4%, what is the optimal portfolio combination?

  • A. 0% bond and 100% stock

  • B. 40% bond and 60% stock

  • C. 100% bond and 0% stock

  • D. 60% bond and 40% stock

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