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You manage a portfolio of stocks with an expected rate of return of 12% and a standard deviation of 20%. The T-bill rate is 3%.

You manage a portfolio of stocks with an expected rate of return of 12% and a standard deviation of 20%. The T-bill rate is 3%. Your client chooses to invest 70% of their portfolio in your fund and the rest in T-bills.

If you assessed your clients risk appetite (A) and it turned out to be 4, would you recommend a change to their capital allocation?

Please explain the reason. Thank you!

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