Investors Group is offering two new Canadian Equity Funds. Their Fund managers have provided the following information:

State of the Economy	Probability of the State of Nature	Small-Cap Fund	Large-Cap Fund
Boom	15%	20%	15%
Flat	65%	10%	9%
Recession	20%	-20%	-3%

Calculate the expected rate of return for each fund. Calculate the standard deviation for each fund. What is the risk premium for each fund if the risk-free rate is 4%? Assume an investor commits to investing $40,000 in the Small Cap Fund and $60,000 in the Large Cap Fund. If the correlation coefficient of the returns of the two funds is 0.97; calculate the expected return and standard deviation of the investors portfolio.