You are a portfolio manager using the capital asset pricing model for making recommendations to her clients. You have the information shown in the following table

	actual return	standard dev	beta
stock a	0.10	0.30	0.9
stock b	0.15	0.20	1.25
market index	0.12	0.25	1.0
risk-free rate	0.03

1) Calculate the fair expected return and alpha for each stock.

2) Identify and justify which stock would be more appropriate for an investor who wants to:

i. add this stock to a well-diversified equity portfolio.

ii. hold this stock as a single-stock portfolio.