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:

LeClanché Cell

An early type of wet cell battery consisting of a zinc anode, a manganese dioxide cathode, and an electrolyte of ammonium chloride.

Carbon-Zinc

A type of battery chemistry characterized by the use of carbon and zinc as the electrode materials, often used in household batteries.

Alkaline

A type of battery chemistry that is based on the reaction between zinc and manganese dioxide, characterized by high energy density.

Hydrometer

A device used to measure the specific gravity of a fluid, such as the electrolyte used in a battery.