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%?

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

c. Find the risk premiums of the portfolio in (a) and (b) and show that they are proportional to their betas.