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    Efficient Frontier Given Covariance

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    In a world of two risky funds: A stock fund with an expected return of 12% and a standard deviation of 10% and a bond fund with an expected return of 8% and a standard deviation of 6%. Plot the efficient frontier given that the covariance is -0.006.

    Bonus question: Given the information in 4 above, what should be the risk free rate in such a world?

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    Solution Summary

    Attached Excel spreadsheet plots the efficient frontier with a covariance of -0.006 for some risky stock.