Mr. Black Forest has $10 million invested in long-term corporate bonds. This bond portfolios expected annual rate of return is 8%, and the annual standard deviation is 10%. Black Forests financial adviser recommends that Black Forest consider investing in an index fund that closely tracks the Standard & Poors 500 Index. The index has an expected return of 12%, and its standard deviation is 16%. The Treasury bill yield is 6%.

1. Could Black Forest do even better by investing equal amounts in the corporate bond portfolio and the index fund? The correlation between the bond portfolio and the index fund is +0.1.