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Portfolio Expected return beta a 10% 1.1 b 14% 1.4 c 18% 2.0   Portfolios a, b, and c are well diversified. If there is an arbitrage opportunity, how will it be done?   Buy stocks a and short stocks b and c, buy stocks a and b and short c, buy stock b and short a and c. There is no arbitrage opportunity.

Portfolio Expected return beta a 10% 1.1 b 14% 1.4 c 18% 2.0   Portfolios a, b, and c are well diversified. If there is an arbitrage opportunity, how will it be done?   Buy stocks a and short stocks b and c, buy stocks a and b and short c, buy stock b and short a and c. There is no arbitrage opportunity.

Essentials Of Investments
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
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100%

Consider the following data:

 

Portfolio

Expected return

beta

a

10%

1.1

b

14%

1.4

c

18%

2.0

 

Portfolios a, b, and c are well diversified. If there is an arbitrage opportunity, how will it be done?

 

  1. Buy stocks a and short stocks b and c,
  2. buy stocks a and b and short c,
  3. buy stock b and short a and c.
  4. There is no arbitrage opportunity.
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