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Problem 1. (Portfolio Allocation) Considering following four: an aggressive growth fund (Fund 1), an index fund

(Fund 2), a corporate bond fund (Fund 3), and a money market fund (Fund 4), each with different expected annual return and risk level. Fund Type Growth Index Bond Money Market Fund Number 1 2 3 4 Expected Return 20.69% 5.87% 10.52% 2.43% Risk Level 4 2 2 1 Maximum Investment 40% 40% 40% 40% In order to contain the risk of the investment to an acceptable level, the amount of money allocated to the aggressive growth plus the corporate bond funds cannot exceed 60% of the portfolio, and the average risk level of the portfolio cannot exceed 2. The total amount invested should be $10 million. What is the optimal portfolio allocation for achieving the maximum expected return at the end of the year, if no short selling is allowed?

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