An investor has invested in a portfolio of fixed income and equity securities

which has a current market value of $500,000. This portfolio has an expected

return of 14% with an associated standard deviation of 24%. The investor is

expected to inherit $500,000 soon. He is currently evaluating the following four

index funds as possible investment opportunities to invest this money:

Index Fund Expected Return% Standard Deviation% Correlation with Investor's Existing Portfolio

Fund A 11 22 +0.60

Fund B 17 26 +0.90

Fund C 15 22 +0.65

Fund D 21 28 +0.80

The investor has two objectives: (i) increase or maintain the current expected return and (ii) reduce or maintain the current risk.

Which fund would you recommend to this investor? Explain why. (No calculations are required.)

A.fund A

B.fund B

C.fund C

D.fund D