Show the benefits of international diversification

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Suppose you are a fixed income fund manager based in euroland. Expected return of the EUR bond market is 4.4 percent and risk 5 percent, expected hedged return of the United Kingdom bond market 5.5% and risk 5.5 percent. Correlation of the two markets is 0.7. Demonstrate the benefits of international diversification by investing 70% of your portfolio in EUR bonds, 30 percent in UK bonds.

Reference no: EM1375095

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