Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12 and 16 , respectively The beta of A is 7, while that of B is 1 4 The T bill rate is currently 5 , whereas the expected rate of return of the S P 500 index is 13 The standard deviation of portfolio A is 12 annually, that of B is 31 , and that of the S P 500 index is 18 a If you currently hold a market index portfolio, would you choose to add either of these portfolios to your holdings Explain b If instead you could invest only in T bills and one of these portfolios, which would you choose

Question: Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The

Based on current yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is .7, while that of B is 1.4. The T-bill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%. The standard deviation of A is 12% annually, that of B is 31%, and that of the S&P 500 index is 18%.
a. If you currently hold a market-index would you choose to add either of these portfolios to your holdings? Explain.
b. If instead you could invest only in T-bills and one of these portfolios, which would you choose?

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