Question
Assume the risk free rate is 4%. You are a financial advisor whose clients care only about stocks expected return and volatility; For a given
Assume the risk free rate is 4%. You are a financial advisor whose clients care only about stocks expected return and volatility; For a given level of volatility, they want to hold the portfolio that maximizes their expected return. Consider the following three funds:
Fund A: Expected Return = 10% and Volatility = 10%
Fund B: Expected Return = 15% and Volatility = 22%
Fund C: Expected Return = 6% and Volatility = 2%
Assume that you must choose one and only one of the funds to your clients. Your clients will then combine the fund with risk free borrowing and lending depending on their level of risk. Which fund would you recommend without knowing your clients risk preference?
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