Suppose there are three mutual funds available and an investor can pick only one of them to invest in. The expected returns and volatilities of the funds are as the following:
Funds: E(r) σ
Bond Fund: 5% 8%
Large Stock Fund 12% 20%
Small Stock Fund 17% 36%
If the investor has an utility function of U = E(r) − (1/2) Aσ^2, which fund should he pick if the risk 2 aversion, A, is 2, 5, or 10?