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Suppose that an investor's human capital is close to riskless. She decides to invest in a diversified portfolio of stocks with an expected return of

Suppose that an investor's human capital is close to riskless. She decides to invest in a diversified portfolio of stocks with an expected return of 9% and volatility of 16%. Her other option is a risk-free bond that pays 1% every year. Her risk-aversion coefficient is A =5. Assume that the value of her human capital is $3 million and her financial wealth is $5 million. How much should she allocate to the risk-free bond?
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$5.0 million
$0.0 million
$2.5 million
$2.0 million

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