An Arbitrage Portfolio Exists,including an Asset a with a Total $10.1 \%$

question 12

Multiple Choice

An arbitrage portfolio exists,including an asset A with a total market value of $60 000 and 100 other assets with a combined market value of $850 000.Assume that asset A is mispriced,with a pricing error of 17%,while the remainder of the assets are priced correctly according to the factor structure.What is the arbitrage portfolio pricing error?

• A) \( 10.1 \% \)
• B) \( 94.5 \% \)
• C) \( 1.1 \% \)
• D) \( 11.2 \% \)

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Definitions:

Fair Values

An estimate of the market value of an asset or liability based on current conditions and assumptions of what parties would agree upon as a fair exchange.

Acquisition Analysis

The process of evaluating the financial, operational, and strategic aspects of a target company during a merger or acquisition.

Post-acquisition Equity

The value of the equity interest in a subsidiary held by a parent company after adjusting for the cost of acquisition and other factors.

Consolidation Worksheet Entries

Journal entries used in the preparation of consolidated financial statements which adjust, eliminate, and combine account balances from separate financial statements of parent and subsidiary entities.