Portfolio a Has a Beta of 0

question 36

Multiple Choice

Portfolio A has a beta of 0.2 and an expected return of 14%.Portfolio B has a beta of 0.5 and an expected return of 16%.The risk-free rate of return is 10%.If you manage a long/short equity fund and 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:

Epinephrine

A hormone also known as adrenaline, secreted by the adrenal glands, increasing heart rate and blood pressure during stress.

Arousal

A physiological and psychological state of being awake or reactive to stimuli, often involving heightened physical activity and alertness.

Leptin

A hormone produced by adipose cells that helps to regulate energy balance by inhibiting hunger, thereby helping to regulate body weight.

Two-Factor Theory

A theory that asserts emotion arises from physiological arousal followed by a cognitive label of that arousal, proposed by Stanley Schachter and Jerome E. Singer.