Monica wants to select an equity fund that will perform the best based on her market expectations. She expects that inflation will remain within the lower limit of the Reserve Bank of Australia inflation band. Monica expects interest rates to decrease in the near future. Economy is expected to slow down and consumers are pessimistic about future employment. Allocation to industry sector allocation are as follows: Fund 1 2 3 Large Cap 80% 60% 40% Small Caps 20% 40% 60% a) Explain why do small caps firms provide higher volatility than large cap firms? Your answer should focus on the firms' earnings and NOT on firms' variability of returns b) Explain which Fund should Monica select to maximise her returns based on her forecast of the market conditions? c) Explain what are Value investments and give an example to show how a small cap firm in the technology sector can be considered a Value investment? Your example should not be based on systematic market and industry movements.