Question: Based on the current dividend yields and expected growth rates, the expected rates of return on stocks A and B are 11% and 14%, respectively.
Based on the current dividend yields and expected growth rates, the expected rates of return on stocks A and B are 11% and 14%, respectively. The beta of stock A is 0.8 while that of stock B is 1.5. The T-bill rate is currently 6%, while the expected rate of return on the S&P 500 index is 12%. The standard deviation of stock A is 10% annually, while that of stock B is 11%. If you currently hold a passive index portfolio, would you choose to add either of these stocks to your current holdings?
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