Friend Is Considering Adding One Additional Stock to a 3-Stock

Multiple Choice

friend is considering adding one additional stock to a 3-stock portfolio, to form a 4-stock portfolioShe is highly risk averse and has asked for your adviceThe three stocks currently held all have b = 1.0, and they are perfectly positively correlated with the marketPotential new Stocks A and B both have expected returns of 15%, are in equilibrium, and are equally correlated with the market, with r = 0.75However, Stock A's standard deviation of returns is 12% versus 8% for Stock BWhich stock should this investor add to his or her portfolio, or does the choice not matter?

A) Stock A.
B) Stock B.
C) Neither A nor B, as neither has a return sufficient to compensate for risk.
D) Add A, since its beta must be lower.
E) Either A or B, i.e., the investor should be indifferent between the two.