If I currently hold the S&P 500, should I add either A or B to my portfolio? Why?
RoR Beta SD
Portfolio A 12.00% 0.7 12.00%
Portfolio B 16.00% 1.4 31.00%
S&P 500 13.00% 18.00%
ROR: Rate of return
SD: Standard deviation
Since you hold S &P (diversified portfolio) beta (systematic risk) is important and not standard deviation (total risk).
T - Bills return is the risk free rate. S &P 500 is the market rate of return
Let us find the required return on portfolios A and B using CAPM
This solution explains which portfolio to include if one already holds S&P 500.