Portfolio a Has a Beta of 1

question 48

Multiple Choice

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 9%.If a hedge fund manager wants to take advantage of an arbitrage opportunity,she 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:

Exception Fallacy

Drawing conclusions about an entire group based on observations of individuals.

Western Colonialism

The process by which Western powers established their dominance and control over other regions and peoples, often characterized by settlement, exploitation, and economic extraction.

Hegemony

Dominance of one social group over others, often achieved through cultural, ideological, or economic means, without the need for overt force.

Neo-Liberalism

An economic and political ideology and policy model that emphasizes the value of free-market competition, minimizing state intervention in the economy.