Consider the Single Factor APT

question 35

Multiple Choice

Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 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; A
• B) A; B
• C) B; A
• D) B; B

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Definitions:

Vena Cava

Large systemic vein that returns blood to the right atrium of the heart in tetrapods; either the superior or inferior vena cava.

Antihistamine

A type of medication that blocks histamine receptors and is used to treat allergic reactions by reducing symptoms like nasal congestion, sneezing, or itching.

Histamine

Substance, produced by basophils in blood and mast cells in connective tissue, that causes capillaries to dilate.

Capillary Dilation

The enlargement or widening of blood capillaries, which can increase blood flow and reduce blood pressure.