Question: Based on current dividend yields and expected growth rates, the expected rate of return on Shares A and B are 11 per cent per annum

Based on current dividend yields and expected growth rates, the expected rate of return on Shares A and B are 11 per cent per annum and 13 per cent per annum respectively. The beta of Share A is 1.3, and that of Share B is 1.7. Bank bills are currently providing a rate of 5 per cent per annum, while the expected return on the All Ordinaries Accumulation Index is 10 per cent per annum. The standard deviation of returns of Share A is 8 per cent per annum, while that of Share B is 11 per cent per annum.If you currently hold a passive index portfolio and are seeking to achieve abnormal returns, you would choose to add:

Share A into the portfolio.

Share B into the portfolio.

both Share A and Share B into the portfolio.

none of the above.

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