You are considering the risk-return profile of tw o mutual funds for investment. The relatively risky fund promises an expected return of 8% w ith a standard deviation of 14%. The relatively less risky fund promises an expected return and standard deviation of 4% and 5%, respectively.

Assume that the returns are approximately normally distributed.

a. Which mutual fund will you pick if your objective is to minimize the probability of earning a negative return?

b. Which mutual fund will you pick if your objective is to maximize the probability of earning a return above 8%? LO5