Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the period was 7%, and the markets average return was 12%. Performance is measured using an index model regression on excess returns.

	Stock A	Stock B
Index model regression estimates	1% + 1.2(rM rf)	2% + 0.8(rM rf)
R-square	0.623	0.46
Residual standard deviation, (e)	11.1%	19.9%
Standard deviation of excess returns	22.4%	26.5%

a. Calculate the following statistics for each stock (use whole percent values, 1%, not 0.01 for example, for your calculations): (Round your answers to 4 decimal places.)

		Stock A		Stock B
i.	Alpha		%		%
ii.	Information ratio
iii.	Sharpe ratio
iv.	Treynor measure

b. Which stock is the best choice under the following circumstances?

i.	This is the only risky asset to be held by the investor.
ii.	This stock will be mixed with the rest of the investors portfolio, currently composed solely of holdings in the market-index fund.
iii.	This is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.