Exhibit 92
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider

question 51

Multiple Choice

Exhibit 9.2
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) . $$\begin{array} { c c c } \text { Stock } & \text { Factor 1 Loading } & \text { Factor 2 Loading } \\\hline \mathrm { X } & - 0.55 & 1.2 \\\mathrm { Y } & - 0.10 & 0.85 \\\mathrm { Z } & 0.35 & 0.5\end{array}$$ The zero-beta return ( $\lambda$ ₀) = 3%, and the risk premia are $\lambda$ ₁ = 10%, $\lambda$ ₂ = 8%. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 9.2. Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50% in stock X, -100% in stock Y, and 50% in stock Z. The net arbitrage profit is

• A)$8
• B)$5
• C)$7
• D)$12
• E)$15

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Definitions:

Equated

To consider one thing to be the same as or equivalent to another.

Church

An institution that brings together a moral community of believers in formal worship and integrates itself within the larger secular world.

Social Cohesion

The bonds and mutual trust that bring members of a society together, enabling them to cooperate and live harmoniously.

Dysfunctional

Referring to something that is not operating normally or effectively, especially in the context of social institutions or processes.