Question 5 (8 points) a. The expected rates of return for stocks A and B are 16% and 20% respectively. The beta of stock A is 0.7 while that of stock B is 0.8. The T-bill rate is 4% and the expected rate of return on S&P 500 index is 24%. The standard deviation of stock A is 20% while that of B is 32%. If you could invest only in T-bills plus one of these stocks, which stock would you choose? b. If the simple CAPM is valid, is the situation below possible? You need to provide an explanation for your answer, just yes or no is not acceptable. Portfolio Risk-free Market A Expected return Beta 5% 10 15% 1.0 14% 1.2