Question: 1)Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A & B are 12% and 16%, respectively. The

1)Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A & B are 12% and 16%, respectively. The Beta of A is 0.7 while that of B is 1.4. The T-bill rate is currently 5%, whereas expected rate of return for the S&P500 is 13%. The standard deviation of portfolio A is 12% annually, that of B is 31% and that of the S&P500 index is 18%.

If you currently hold a market-index portfolio, would you choose to add either A or B to your holdings?Explain using appropriate performance evaluation metric.

If instead, you could invest in only T-bills and one of these portfolios which would you choose?

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