Solved

Consider a One-Factor Economy

Question 54

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
E) none of the above

Correct Answer:

verifed

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Q31: Consider a well-diversified portfolio, A, in a

Q49: Consider the multifactor APT. There are

Q50: In the context of the Arbitrage Pricing

Q52: In a multi-factor APT model,the coefficients on

Q53: If you invested in an equally weighted

Q55: Consider the multifactor APT with two factors.The

Q56: Portfolio A has expected return of 10%

Q59: In the APT model, what is the

Q59: In a multi-factor APT model,the coefficients on

Q76: Consider a single factor APT. Portfolio A