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Consider the single factor APT. Portfolio A has a beta of 1.8 and an expected return of 21%. Portfolio B has a beta of .8 and an expected return of 21%. The risk-free rate of return is 12%. 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;A
B: A;B
C: B;B
D: B;A

Respuesta :

jepessoa

Answer:

... you should take a short position in portfolio A and a long position in portfolio B.

  • B: A;B

Explanation:

Portfolio A:

21% = 12% + 1.8F

1.8F = 9%

F = 5%

Portfolio B:

21% = 12% + 0.8F

0.8F = 9%

F = 11.25%

Since Portfolio B's F = 11.25% > Portfolio A's F = 5%, then you should take a short position in Portfolio A and a long position in Portfolio B.

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