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(c) Discuss the following graphic, which shows the relationship between expected return and portfolio weights. The portfolio is comprised of a debt security D and
(c) Discuss the following graphic, which shows the relationship between expected return and portfolio weights. The portfolio is comprised of a debt security D and an equity security E. What would the portfolio strategy be when Wo = 2 and We = -1? Expected Return 13% Equity Fund 8% Debt Fund w (stocks) -0.5 0 1.0 2.0 1.5 1.0 0 -10 w (bonds) = 1 -w (stocks) Figure 7.3 Portfolio expicted return as a function of investment proportions Source: Bodie, Z., Kane, A., Marcus, A.J. (2011). Investments and Portfolio Management, Gobal Edition (7 marks)
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