Consider a One-Factor Economy

question 75

Multiple Choice

Consider a one-factor economy.Portfolio A has a beta of 1.0 on the factor and portfolio B has a beta of 2.0 on the factor.The expected returns on portfolios A and B are 11% and 17%, respectively.Assume that the risk-free rate is 6% and that arbitrage opportunities exist.Suppose you invested $100,000 in the risk-free asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A.Your expected profit from this strategy would be

• A)-$1,000.
• B)$0.
• C)$1,000.
• D)$2,000.

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Definitions:

Model Business Corporation Act (MBCA)

A set of laws proposed by legal experts to guide states in the establishment of their corporate statutes.

Quarterly Meeting

A scheduled meeting that occurs four times a year, typically to review quarterly performance and plan for future strategies.

Shareholders

Individuals or entities that own shares in a corporation and have potential financial gains or losses based on the company's performance.

Terminated Corporation

A terminated corporation is a company that has gone through the legal process of dissolution and has ceased its operations and its corporate existence.