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The market portfolio has an expected return of 10% p.a. and a standard deviation of returns of 20%. The risk-free rate of return is 5%

The market portfolio has an expected return of 10% p.a. and a standard deviation of returns of 20%. The risk-free rate of return is 5% p.a.

An investor is currently holding a market index fund. She is deciding whether to add any of the following stocks to her current holding and has been provided with the following data:

Analysts' Forecast Return

Standard Deviation

Beta

Stock A

10%

21%

0.9

Stock B

11%

24%

1.2

Stock C

12%

27%

1.5

Stock D

13%

35%

2.0

Advise which, if any, of the stocks the investor should add to her portfolios:

Select one:

a.Stock D

b.Stock A

c.Both Stocks C and D.

d.Stock C

e.Stock B

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