. There are two investment funds. One of them is a passive portfolio, meaning that it mimics the S&P 500. The passive portfolio generates has an expected return of 13% with a standard deviation of 25%. In contrast, you are the manager of an active portfolio, which generates an expected return of 18% and has a standard deviation of 28%. Note that the risk-free rate is 8%.

A) Your client is currently holding 70% of their total wealth in your active fund, with the other 30% invested in the risk-free asset. They are thinking about switching from your fund to invest instead in the passive fund. Write a paragraph to your client explaining why this is not a good idea.

B) How much would you have to be charging in investment fees (as percent of total investment plus return) for switching to be a good idea?