Consider a Single Factor APT

question 76

Multiple Choice

Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 22%. Portfolio B has a beta of 1.5 and an expected return of 17%. The risk-free rate of return is 4%. 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
• E) A; the riskless asset

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Definitions:

Paraphrase Method

A technique of restating a text or passage in one's own words to enhance understanding or clarity.

Data-Gathering

The process of collecting facts, figures, and other relevant information to support analysis, decision making, or research.

Primary

A term indicating the most fundamental, dominating, or initial condition, factor, or source in a given context.

Secondary Data

Information that was collected by someone else for a different purpose but is being used as a source of data for a new research project.