The expected rates of return and risk measures for two portfolios as well as the market index are given in the following table. The T-bill rate is currently 5%.

Portfolio A Portfolio B Market Index Expected return 12% 16% 13%

Beta 0.7 1.4 1.0 Standard deviation 12% 31% 18%

a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.

b. If instead you could invest only in T-bills and one of these portfolios, which would you choose?

.P-96