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Increase or maintain the current expected return

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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

Reference no: EM132504332

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