1. You are a portfolio manager at Melvin Capital.

	Forecast return	Standard deviation	Beta
Stock A	13%	34%	0.8
Stock B	13%	25%	1.7
Market index	10%	15%	1
T-bills	5%	0	0

1. What are the expected returns on stocks A and B?
2. Identify and justify which stock (stock A or B) would be more appropriate for an investor who wants to add the stock to a well-diversified equity portfolio.
3. Identify and justify which stock (stock A or B) would be more appropriate for an investor who wants to hold this stock as a single-stock portfolio.
4. Suppose that one of your clients wants to reduce the risk exposure of her portfolio. Provide your suggestion and justify in the context of the Security Market Line.