Consider a One-Factor Economy

Multiple Choice

Consider a one-factor economy.Portfolio A has a beta of 1.0 on the factor and portfolio B has a beta of 2.0 on the factor.The expected returns on portfolios A and B are 11% and 17%, respectively.Assume that the risk-free rate is 6% and that arbitrage opportunities exist.Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A.Your expected profit from this strategy would be

A) -$1,000.
B) $0.
C) $1,000.
D) $2,000.