Consider a Single Factor APT

question 76

Multiple Choice

Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 22%. Portfolio B has a beta of 1.5 and an expected return of 17%. The risk-free rate of return is 4%. 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
• E) A; the riskless asset

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A legal agreement approved by a judge or competent authority, resolving a dispute between two parties without the need for a trial.

Fine

A monetary penalty imposed by a court on a person or entity as punishment for an offense or breach of law.

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Consent Order

A legal agreement approved by a court, usually resolving a dispute between parties without admission of guilt or liability.