5. Return and Risk of Portfolio (12%) Mr. Smith's portfolio of $2 million is invested as follows: Summary of Smith's Current Portfolio Annual Percentage of Expected Value Standard Total Annual Return Deviation Short-term Bonds 200,000 10% 4.6% 1.6% Domestic Large-Cap 600,000 30% 12.4% 19.5% Equities Domestic Small Cap 1.200.000 60% 16.0% 29.9% Equities Total Portfolio 2,000,000 100% 13.8% 23.1% Smith soon expects to receive an additional $2 million and plans to invest the entire amount in an index fund that best complements the current portfolio. You, an expert of fund management, are evaluating the four index funds shown in the following table for their ability to produce a portfolio that will meet two criteria relative to the current portfolio: (1) maintain or enhance expected return and (2) maintain or reduce volatility. Each fund is invested in an asset class that is not substantially represented in the current portfolio. Index Fund Characteristics Index Fund Expected Annual Expected An Correlation of Return Returns with Standard Deviation Current Portfolio Fund A 15% 25% +0.8 Fund B 11% -0.6 Fund C 16% 25% -09 Fund D +0.65 State which fund you should recommend to Smith. Justify your choice by describing how your chosen fund best meets both of Smith's criteria. No calculations are required