Stephensons current portfolio is $2 million is invested as shown in the exhibit 8.1 below Exhibit 8.1 Value % of Total Expected Annual Return Annual Standard Deviation Short Term Bonds $200,000 10% 4.6% 1.6% Domestic Large Cap Equities $600,000 30% 12.4% 19.5% Domestic Small Cap Equities $1,200,000 60% 16.0% 29.9% Total Portfolio $2,000,000 100% 13.8% 23.1% c. Stephenson soon expects to receive an additional $2.0 million and plans to invest the entire amount in an index fund that best complements the current portfolio. Coppa is evaluating the four index funds shown in exhibit 8.2 for their ability to produce a portfolio that will meet the following two criteria relative to the current portfolio: Maintain or enhance expected return Maintain or reduce volatility Each fund is invested in an asset class that is not substantially represented in the current portfolio Exhibit 8.2 Index Fund Expected Annual Return Expected Annual Standard Deviation Correlation of returns with current portfolio Fund A 15% 25% +0.80 Fund B 11% 22% +0.60 Fund C 16% 25% +0.90 Fund D 14% 22% +0.65 State which fund Coppa should recommend to Stephenson. Justify your choice by describing how your chosen fund best meets both Stephensons criteria