Business, 11.02.2020 20:55 mitalichavez1

Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an expected return of 10% and T-bills provide a risk-free return of 4%.

a) How would you construct a portfolio from these two assets with an expected return of 8%?
Specifically, what will be the weights in the S&P 500 versus the T-bills?
b) How would you construct a portfolio from these two assets with a beta of 0.4?
c) Find the risk premium of the portfolio in (a) and (b), and show that they are proportional to their betas.

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