Consider the Single Factor APT

question 55

Multiple Choice

Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate of return is 10%. If you 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:

Hypnosis

A trance-like state of focused attention and heightened suggestibility, with diminished peripheral awareness, often induced by a hypnotic suggestion.

Opiate Drugs

Substances derived from the opium poppy, such as morphine and heroin, that have powerful pain-relieving properties but are also highly addictive.

Body Temperatures

The degree or intensity of heat present in a living body, typically maintained within a range that enables normal functioning.

Muscle Activity

The physiological processes of muscle contraction and relaxation, which enable movement and stabilization of the body.