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Several individual investor clients are interested in investing in portfolios comprised of both stocks and bonds. In preparation for meeting with these various investors, you

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Several individual investor clients are interested in investing in portfolios comprised of both stocks and bonds. In preparation for meeting with these various investors, you have the plot of the investment opportunity set for stocks and bonds. Given this information, why might you advise some of the investors to invest in a portfolio other than the minimum variance portfolio? Explain what the difference in the portfolios is. Explain how correlation and asset allocation is important to portfolio diversification. E(Rp) E(R) 0.07 0.06 0.05 0.04 E(Rp) 0.03 0.02 0.01 0 0.0008 0.0001 0.0002 0.0004 0.0006 0 0.0005

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