Assume the risk-free rate is 4%. You are a financial advisor, and must choose one of the funds below to recommend to each of your clients. Whichever fund you recommend, your clients will then combine it with risk-free borrowing and lending depending on their desired level of risk.

Expected Return Volatility Fund A 10% 4%

Fund B 13% 18%

Fund C 7% 4%

Which fund would you recommend without knowing your client’s risk preference?

AppendixLO1