You are an investor and notice a diversified portfolio, D from the table below. Suppose you use a multifactor APT model and expect D to generate a return of 7.55% during the next year. Using a risk-free rate of 4%, a market risk premium of 6%, calculate the beta and CAPM then determine how much arbitrage profit you could generate on a $100,000 position. -$311.48 0 $0 O-$895.26 $895.26 $311.48 Time A, % 1 12 2 4 5 6 -7 13 12 12 B, % 6 21 -2 794 C, % 7 -3 -2 14 18 5 D, % 12 -5 -2 17 24 14 E, % Market, % 9 15 -4 14 16 10 -10 -5 21 24 10

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
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You are an investor and notice a diversified portfolio, D from the table below. Suppose you use a
multifactor APT model and expect D to generate a return of 7.55% during the next year. Using a
risk-free rate of 4%, a market risk premium of 6%, calculate the beta and CAPM then determine
how much arbitrage profit you could generate on a $100,000 position.
-$311.48
$0
-$895.26
$895.26
$311.48
Time A, %
1
12
2
3
45
B, % C, %
6
7
21 -3
-2
-2
13 7 14
9
18
4
5
6
26
-7
322
12
12
D, %
12
-5
-10
-2
-5
17
21
24 24
14
10
E, % Market, %
9
15
-4
14
16
10
Transcribed Image Text:You are an investor and notice a diversified portfolio, D from the table below. Suppose you use a multifactor APT model and expect D to generate a return of 7.55% during the next year. Using a risk-free rate of 4%, a market risk premium of 6%, calculate the beta and CAPM then determine how much arbitrage profit you could generate on a $100,000 position. -$311.48 $0 -$895.26 $895.26 $311.48 Time A, % 1 12 2 3 45 B, % C, % 6 7 21 -3 -2 -2 13 7 14 9 18 4 5 6 26 -7 322 12 12 D, % 12 -5 -10 -2 -5 17 21 24 24 14 10 E, % Market, % 9 15 -4 14 16 10
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