Portfolio Risk and Return. Suppose that the S&P 500, with a beta of 1.0, has an expected return of 13 percent and T-bills provide a risk-free return of 5 percent.

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. Based on 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?