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E. Cannot be determined MCQ3. Darcy is a mean variance optimizer with a risk aversion coefficient of 3. For the coming year, he has the
E. Cannot be determined MCQ3. Darcy is a mean variance optimizer with a risk aversion coefficient of 3. For the coming year, he has the choice of investing his nest egg of $2000 in one of two risky mutual funds, A and B. A has an expected return of 9% and a standard deviation of 20%, whereas B has an expected return of 10% and a standard deviation of 25%. In addition to being able to invest in one of funds A and B, he can also invest in a short-term money market fund that invests in U.S. Treasury bills, which yield 6% currently. The money market fund also allows good clients like Darcy to short sell the money market fund with minimal transactions costs. The following additional information is available on the two funds. Which mutual fund should Darcy choose? a A. Mutual fund B B. Mutual fund A C. A and B are equally preferred D. None of the above
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