You are the manager of a pension fund, and your fee depends on the return attained. You can play it safe and allocate wealth to a risk-free portfolio earning 4% per year. Alternatively, you can pursue an active portfolio management strategy, whose a return is normally distributed, with expected value 8% and standard deviation 10%. Your fee depends on the earned return according to the following tabulation:

Return (R) Fee R < 0% $0 0% < R < 3% $50,000 3% < R < 9% $100,000 9% < R $200,000 • Which is your best strategy, if you are risk-neutral?
• What is the standard deviation of your fee, if you take the active strategy?