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? [Hint: Use the Sharpe Ratio]

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? [Hint: Use the Treynor Ratio]

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