Suppose you are a mean-variance investor (i.e., you like mean and dislike variance) and your optimal portfolio is P. The risk premium of portfolio P is E[Rp] Rf = 0.10, while P = 0.15 and Rf = 0.04. There is a security i that has i = 0.15.

(a) What expected return do you require on security i if its beta to portfolio P is 0.5 (i = 0.5)?

(b) What expected return do you require on security i if i = 0? How do you make sense of this in light of the fact that i = 0.15.

(c) What expected return do you require if i = 0.8? How do you make sense of this answer?