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Karen currently has $5 million invested in a long-term bond fund which has an expected return...

Karen currently has $5 million invested in a long-term bond fund which has an expected return of 7% and a standard deviation of 18%. Her son, Michael, recommends her to consider changing to invest 30% of the $5 million in an equity fund and the remainder in the bond fund. The equity fund has an expected return of

16% and a standard deviation of 35%. The correlation between the fund returns is 0.1. Should Karen follow Michael’s recommendation? Explain with calculations.

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