Consider the Single Factor APT

question 22

Multiple Choice

Consider the single factor APT.Portfolio A has a beta of 1.3 and an expected return of 21%.Portfolio B has a beta of 0.7 and an expected return of 17%.The risk-free rate of return is 8%.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:

Market Failure

A scenario where the distribution of goods and services by an unregulated market fails to be effective, frequently causing a decrease in overall social welfare.

Communist Countries

Nations where the government controls most forms of economic activity and property is commonly owned.

Scarce Resources

Scarce resources are resources that are limited in availability and cannot satisfy all the wants and needs of an economy or population.

Allocate

To distribute resources or duties for a specific purpose according to a plan.