1. b) Stock A has a beta of 0.6 with the benchmark (MKT) return. The MKT return is 16%, and the MKT variance is 12%. Stock A has an average annual return of 13% and variance of 9%. Use the Single Index Model to determine the alpha and unique risk for Stock A and comment on how these measures are used in portfolio construction. (7 marks)

C) Should a portfolio manager select stocks with high or low unique risks?