Problems 1. The current risk free rate is 4% and the expected risk premium on the market portfolio is 7%. An asset has a beta of 1.2. What is the expected return on this asset? Interpret the number 1.2. a. An asset has a beta of 0.6. What is the expected return on this asset? b. If we invest 12 of our money in the first asset and 12 of our money in the second, what is our portfolio beta and what is its expected return? C. Relative to the first asset our portfolio has a smaller expected return, why? d. Does this mean the first asset is better than the portfolio? 2. The current risk free rate is 4% and the expected risk premium on the market portfolio is 7%. You work for a software company and have been asked to estimate the appropriate discount rate for a proposed investment project. Your company's stock has a beta of 1.3. The project is a proposal to begin cigarette production. RJR Reynolds has a beta of 0.22. What is the appropriate discount rate and why