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Posted on May 11, 2024

Suppose John asks you to analyze the portfolios having the following characteristics. Portfolio Observed return Beta Residual SD A 18% 1.8 0.04 B 24% 2.6

Suppose John asks you to analyze the portfolios having the following characteristics.

Portfolio Observed return Beta Residual SD

A 18% 1.8 0.04

B 24% 2.6 0.06

The return on the market portfolio is 0.14. The risk free rate is 0.07. The standard deviation of the market portfolio is 0.02.

What advice would you give to John regarding these two independent investment opportunities?

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