You present a client the following 3 risky portfolios: (r1=25%, SD1=50%); (r2=13%, SD2=25%); (r3=10%, SD3=15%). After examining the portfolios, your client states that she is very risk averse and is only willing to take a little risk in her overall investments. Given this information and assuming a risk-free Rf = 5%, which risky portfolio would you recommend? [NOTE: SD = standard deviation]
A) Choose the risk-free asset only.
B) Choose Portfolio 1 for the money she wants to put at risk.
C) Choose Portfolio 2 for the money she wants to put at risk.
D) Choose Portfolio 3 for the money she wants to put at risk.