Choosing One Portfolio. The following table shows your predictions of the future returns on three mutual funds. Treasury Bills currently earn 4%. To invest all your wealth, you are limited to choosing a portfolio of only one of these three funds along with T-Bills. You are risk averse and able to borrow and short-sell. Which one of the three risky funds do you choose to invest in. Simple calculations or a graph may be helpful to illustrate your choices.
Compare Fund A to Fund B. Which do you prefer? Explain.
|
| |
T-Bills |
Fund A |
Fund B |
Fund C |
|
| E[rp] |
4% |
16% |
16% |
10% |
 dp |
|
25% |
20% |
12% |
 ßp |
|
.90 |
1.00 |
0.60 |
|