CAPM & SML. Consider the CAPM framework. Suppose that you currently have 50% of your wealth in a risk-free asset and 50% 7.6 in the four assets below: Asset i Er (%) B; W; i= 1 0.2 0.1 i=2 12.4 0.8 0.1 =3 15.6 1.2 0.1 18.8 1.6 0.2 Let the four assets be traded in a market M with Erm = 14% and let the risk-free rate be rf = 6%. Answer the following questions. (a) Identify the current (old) portfolio: that is, find the weights, the expected rate of return and the beta of that portfolio Since the weights are given, you need to find (Erp)oid and (Bpon (b) Now, suppose that you want an expected rate of return of 12%. Your strategy is to sell some of your holdings of the risk-free asset and use the proceeds to buy the market portfolio. If this is the way you decide to revise your portfolio, characterize this new portfolio; that is, find the weights, (ET)New = 12%, and (Bp) New (c) Now, suppose, instead, that you want to hold only the risk-free asset and the market portfolio. What set of weight would give you an expected 12% rate of return? What is the beta of this new portfolio