Consider a One-Factor Economy

question 54

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
• E)none of the above

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Definitions:

G Factor

Also known as General Intelligence, it refers to the underlying factor that accounts for overall cognitive abilities across various tasks and tests.

Savant Syndrome

A condition in which a person otherwise limited in mental ability has an exceptional specific skill, such as in computation or drawing.

Emotional Intelligence

The ability to perceive, understand, manage, and use emotions.

Divergent Thinking

A mental approach or technique for producing inventive concepts through the examination of numerous potential answers.