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You manage a risky portfolio that is expected to provide a return of 17% and a standard deviation of 27%. The risk-free rate is 7%.

You manage a risky portfolio that is expected to provide a return of 17% and a standard deviation of 27%. The risk-free rate is 7%. Your client is thinking of switching to an index fund that is expected to provide a return of 13% with a standard deviation of 25%. Draw the Capital Allocation Line (CAL) for each investment option. Which fund should your client prefer?

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