Based on current dividend yields and expected capital gains, the expected rate of returns on portfolio A and B are 10% and 11% respectively. The beta of portfolio A is 0.80 while that of B is 1.4. risk-free rate is 6%, while expected return of the market portfolio is 10%. The standard deviation of portfolio A is 25% , while that of B is 22%, and that of the stock market index is 20%.

(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 the risk-free asset and one of these alternative portfolios, which would you choose?