Mary Reid works as a financial advisor at Wells Fargo Wealth Management team. She is a big believer of the capital asset pricing model and often use it for making recommendations to her clients. One of her clients has identified two stocks and wants to discuss some investment opportunity with Mary. Wells Fargos research department has developed the information shown in the following exhibit.

Forcast Returns, Standard Deviations, and Betas

	Forcast Return	Standard Deviation	Beta
Stock X	14%	36%	0.8
Stock Y	17	25	1.5
Market Index	14	15	1.0
Risk-Free rate	5

1. Calculate expected return and alpha for each stock.

2. Identify and justify which stock would be more appropriate for this investor who wants to

--add this stock to a well-diversified equity portfolio.

--hold this stock as a single-stock portfolio.