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