Charlotte Read is also responsible for managing the $3 million portfolio of another client: Gray Norton. Short-term bonds, small stocks and large stocks compose this portfolio. The annual expected return of the portfolio is 14% and the annual standard deviation is 24%. Gray Norton tells Charlotte Read that he would like to invest an additional $1 million in an index fund that best complements his current portfolio in terms of expected returns and volatility. Which of the four Funds, illustrated in Table 1, should Charlotte recommend to Gray as the investment that combined with the current portfolio of assets will be able to provide a portfolio with higher expected

return and lower risk? Explain your answer fully.