Develop a numerical example to convince your client

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Question - You are a financial planner meeting a new client. The client is risk averse and wants to invest all of her investment budget in a Bond Fund paying an annual interest rate of 5% and having an annual standard deviation of returns = 8%. You are aware of a stock mutual Fund that offers a higher return (10%), but is more risky (standard deviation of annual returns = 19%.)

Would you agree with your client's investment strategy: invest 100% of her investment budget in the Bond Fund? If not, what asset allocation strategy would you recommend? Develop a numerical example to convince your client of the wisdom of your recommendation. What investment principle would you use to explain the basis of your recommendation?

Reference no: EM132199773

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