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zysi [14]
3 years ago
7

Consider the single factor APT. Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .4 and an

expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________.
A. A;AB. A;BC. B;AD. B;Bplease explain the answer
Business
1 answer:
lesya [120]3 years ago
4 0

Answer:

C. B;A.

Explanation:

A: 13% = 10% + 0.2F; F = 15%; B: 15% = 10% + 0.4F; F = 12.5%; therefore, short B and take a long position in A.

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