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:

Complex Sentences

Sentences that contain one independent clause and at least one dependent clause, often used to convey detailed information.

Key Pieces

Essential or most important parts of something that are crucial for understanding or completing it.

Transition

The process or period of changing from one state or condition to another in writing, it refers to words or phrases that connect ideas and sections.

Conjunctions

Words used to connect clauses, sentences, or words in the same clause, such as "and," "but," and "or."