Dave Santos, a financial adviser is planning to make an investment portfolio for his client. He is currently looking at three possible portfolio combination. Listed below are the three options together with the expected return and standard deviation.

Investment Expected Return Standard Deviation

50% bonds and 50% stocks 20% 7%

80% bonds and 20% stocks 19 6.0

20% bonds and 80% stocks 22 9.5

1. Upon evaluating client, Mr. Dave Santos discovered that his client is considered risk averse, which investment portfolio should he recommend? Why should Mr. Dave Santos recommend such portfolio?

2. What is the purpose of an expected return and standard deviation in making an investment decision?