Suppose the market index has an expected return of 7% and the risk free asset has an expected return of 5%. Now suppose there is an individual stock that has a beta of 1.4 and an expected return of 8%.

a. Suppose your goal is to use two of the three assets described in the prompt to construct a portfolio that has a 6% expected return with lowest level of systematic risk possible. What portfolio weights would you use to construct this portfolio?

b. Would you be willing to purchase this stock? What rate of return would be required for a stock with this level of risk to be attractive?

c. Suppose you have a portfolio consisting of the risk-free asset and the individual stock. It is weighted so that the expected return of this portfolio is 6%. What would be the beta of this portfolio?