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5. Over the last twenty years, the average return and standard deviation of returns of large cap value stocks are 8.5% and 15.2%, and the
5. Over the last twenty years, the average return and standard deviation of returns of large cap value stocks are 8.5% and 15.2%, and the average return and standard deviation of returns of fixed income portfolio are 5.3% and 3.4%. Suppose that over the next year the expected returns and risks of the two asset classes will remain the same as what happened in the last twenty years. Further assume that you can invest in a riskless asset with 2% return over the next year (you can also borrow money with an interest rate of 2%). Suppose that you can invest in the risk-free asset, and either the large cap value stocks portfolio or the fixed income portfolio. Which portfolio will you choose and why
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