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Business, 29.05.2020 02:04 salsa456

3. The returns on stocks A and B are 12% and 16%, respectively. The SD of the returns on stocks A and B are 31% and 12%, respectively. The beta of A is 0.7, while that of B is 1.4. The risk free rate over the period was 5%, the market’s average return was 13%. a. Calculate the Sharpe ratio for each stock (10 points). b. Calculate the alpha for each stock (10 points). c. Which stock is the best choice if this stock will be mixed with the rest of the investor’s portfolio, currently composed solely of holdings in the market-index fund (15 points).

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