1. Suppose you are a portfolio manager using the capital asset pricing model for making recommendations to her clients. You have the information shown in the following table. Actual/realised return Standard deviation Beta Stock A 14% 36% 0.8 Stock B 17% 25% 1.5 Market index 14% 15% 1.0 Risk-free rate 5% a. Calculate the fair expected return and alpha for each stock. (10 marks) 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. (5 marks) ii. hold this stock as a single-stock portfolio. (5 marks) c. Explain: i. What is Beta? (5 marks) ii. In practice we do not observe Beta but stock prices, market index, and risk-free rate, etc. How do we calculate Beta