Assume the CAPM holds, and that the risk-free rate is 5.5 % and the expected equity risk premium in 8.5.

a) If the expected return of Risco is 15%, what is its beta?

b) If the expected return of Safco is 10%, what is its beta?

c) Suppose you could borrow and lend at the riskless rate. What portfolio of Safco and the riskless security could you create that would have the same systematic risk (i.e. beta) as Risco?

d) Again, suppose that the CAPM were violated and that Risco plotted above the security market line by 4%. How might you take advantage of this situation, without incurring systematic risk, or incurring any net expense? For this question, you may assume that both securities can be purchased and shorted with no transactions costs, and that you could borrow and lend at the riskless rate. Write out the exact portfolio you would create.