You evaluate two securities, A & B, as potential investment opportunities. The expected return of stock A is 9%, its standard deviation 10% and its beta value is 0.8. The expected return of stock B is 15%, its standard deviation 30% and its beta equal to 1.5. The risk free rate is 5%.

1. If you are allowed to pick only one stock, which one will it be? Show your work

2. If you are allowed to pick only one stock to add it to your already well-diversified portfolio, then which one will it be?

If your picks in (1) and (2) are different, explain the reason.