Assume the risk-free rate is 7% p.a. The expected return on the market portfolio is 12% p.a., and the variance of this return ( ) 2 m is 0.09. You are examining two stocks: A and B. The standard deviations of the return on Stocks A and B are 50% p.a. and 20% p.a. respectively. The correlation between each stock and the market is: , , 0.90, 0.60 A m B m = = . What is the beta of each stock? a. 1.5 and 0.40 b. 1.5 and 0.32 c. 1.78 and 0.56 d. Cannot be determined.

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