Question about Ch 12 QP 7 from the Fundamentals of Corporate Finance (9th ed).

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 T-bills?

b) How would you construct a portfolio from the two assets with a beta of .4?

c) Find the risk premiums of the portfolios in parts (a) and (b), ad show they are proportional to thier betas.