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).

At a student café, there are equal numbers of two types of customers with the following values. the café owner cannot distinguish between the two types of students because many students without early classes arrive early anyway (i.e., she cannot price-discriminate). students with early classes students without early classes coffee 70 60 banana 51 101 the marginal cost of coffee is 10 and the marginal cost of a banana is 40. the café owner is considering three pricing strategies: 1. mixed bundling: price bundle of coffee and a banana for 161, or just a coffee for 70. 2. price separately: offer coffee at 60, price a banana at 101. 3. bundle only: coffee and a banana for 121. do not offer goods separately. assume that if the price of an item or bundle is no more than exactly equal to a student's willingness to pay, then the student will purchase the item or bundle. for simplicity, assume there is just one student with an early class, and one student without an early class. price strategy revenue from pricing strategy cost from pricing strategy profit from pricing strategy 1. mixed bundling $ $ $ 2. price separately $ $ $ 3. bundle only $ $ $ pricing strategy yields the highest profit for the café owner.