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%
Delta pδp 25% 20% 12%
Beta pβp .90 1.00 0.60