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 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 0.7, 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. Calculate the alphas for the two portfolios. (Do not round intermediate calculations. Round your answers to 1 decimal place. Negative amount should be indicated by a minus sign.) b. If you could invest only in one of these portfolios, which would you choose? Why? Show your work. c. If you could pick only one of these portfolios to add to an already well-diversified position, which would you choose? Why? Show your work.

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