The following table provides information on two risky stocks that you think, given some special information, are good investments.

Stock	Expected Return	SD
A	0.15	0.23
B	0.20	0.18

The covariance between these two stocks is -.001. The expected return on the market is .15 with a standard deviation of .15. The risk-free rate is .03. You can borrow and lend at this risk-free rate.

You have $1,000,000 to invest. Some of this you may put in risk free T-bills (with a return of 3%), with the remainder invested in a portfolio of the two stocks above. Consider a portfolio that has 50 percent of the amount you put at risk in Stock A and 50 percent in Stock B. Call the portfolio that consists of Stock A and Stock B your risky portfolio. For this risky portfolio, answer the following question.

You have estimated a market model (a regression of the return on each individual security in excess of the risk-free rate on the return on the market in excess of the risk-free rate) and you have obtained the following estimates of the market betas of each of the above securities.

Stock	Market Beta
A	0.80
B	1.2

According to CAPM, what should the expected returns on each of the two stocks equal?

Does this explain why you prefer one portfolio over the other? Why or why not?