Portfolio Risk and Return. Suppose that the S&P 500, with a
beta of 1.0, has an expected
return of 13% and T-bills provide a risk-free return of 4%.
(LO12-2)
a. What would be the expected return and beta of portfolios
constructed from these two assets
with weights in the S&P 500 of (i) 0; (ii) .25; (iii) .5; (iv)
.75; (v) 1.0?
b. On the basis of your answer to (a), what is the trade-off
between risk and return, that is, how
does expected return vary with beta?
c. What does your answer to (b) have to do with the security market
line relationship?
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