karen kay a portfolio manager at collins asset management is using the capital asset 665514

Briefly explain whether investors should expect a higher return from holding Portfolio A versus Portfolio B under capital asset pricing theory (CAPM). Assume that both portfolios are fully diversified.

Karen Kay, a portfolio manager at Collins Asset Management, is using the capital asset pricing model for making recommendations to her clients. Her research department has developed the information shown in the following exhibit.

Forecast Returns, Standard Deviations, and Betas

a. Calculate expected return and alpha for each stock.

b. Identify and justify which stock would be more appropriate for an investor who wants to

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

ii. hold this stock as a single stock portfolio.