Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20%. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk - free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio
Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected return of 20%. Portfolio B has a beta of 0.7 and an expected return of 16%. The risk - free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected
return of 20 %. Portfolio B has a beta of 0.7 and an expected return of
16%. The risk - free rate of return is 8%. If you wanted to take advantage
of an arbitrage opportunity, you should take a short position in portfolio
and a long position in portfolio](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2a4370ef-c96e-43b5-ac38-46fbb3f95c9a%2Fc864504a-d44f-469a-ba06-2f686fefa484%2Fk7vxjz9_processed.png&w=3840&q=75)
Transcribed Image Text:Consider the single factor APT. Portfolio A has a beta of 1.5 and an expected
return of 20 %. Portfolio B has a beta of 0.7 and an expected return of
16%. The risk - free rate of return is 8%. If you wanted to take advantage
of an arbitrage opportunity, you should take a short position in portfolio
and a long position in portfolio
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