Assume the risk-free rate is 4 you are a financial advisor, Ask an Expert

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Assume the risk-free rate is 4%. You are a financial advisor and your client has decided to invest in exactly one of two risky funds, A and B. She comes to you for advice. Whichever fund you recommend she will combine it with the risk -free asset. Expected returns are E(RA) = 13% and E(RB) = 18%. Volatilities are σA = 20% and σB = 30%. Without knowing your client’s tolerance for risk, which fund would you recommend? (Hint: Compute for Sharpe Ratio)

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