problem Chapter 7 In-Class Assignment -> Book Stocks Expected Return = 20% Bonds Expected return = 12% Correlation = .10 Standard Deviation = 30% Standard Deviation = 15% Suppose the optimal risky portfolio has a return of 16% and a standard deviation of 22% Construct a portfolio of stocks and bonds with a return of 26% without borrowing (hint: use short selling). What are the proportions in each asset? What is the standard deviation of this portfolio? What reduction in standard deviation could be achieved by borrowing (assume a risk free rate of 8%)