USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the Three

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas) .
The zero-beta return ( $\lambda$ 0) = 3 percent, and the risk premia are $\lambda$ 1 = 10 percent and $\lambda$ 2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50 percent in stock X, -100 percent in stock Y, and 50 percent in stock Z. The net arbitrage profit is

A) $8.
B) $5.
C) $7.
D) $12.
E) $15.