An analyst has provided you with the following information about the common shares of two companies Kingston Ltd. and Mobay Ltd.

Common Shares Kingston Ltd Mobay Ltd Required rate of return 9% 10% Risk free rate of return 3% 3% Standard deviation of return 17% 13% Market risk premium 6.5% 6.5% Beta 0.75 1.25

a) Calculate the expected return for each company using the capital asset pricing model. (Use 4 decimal places) (6 marks)

b) Using the information about the companies provided above, along with your calculation in part a) Indicate whether a well-diversified investor would prefer to invest in the shares of Kingston Ltd. or the shares of Mobay Ltd. Explain why. (4 marks)