-Suppose the Above Asset Is Observed in the Market Trading

question 7

Multiple Choice

$\begin{array}{|l|l|l|l|}\hline \text { Factor } & {\left[\mathrm{E}\left(\mathrm{R}_{\mathrm{M}}\right) -\mathrm{R}_{\mathrm{F}}\right) } & \mathrm{SMB} & \mathrm{HML} \\\hline \text { Sensitivity } & \mathrm{b}_{\mathrm{i}}=1.75 & \mathrm{~s}_{\mathrm{i}}=-0.80 & \mathrm{~h}_{\mathrm{i}}=0.60 \\\hline \text { Risk premium } & 18.5 \% & 5.25 \% & 0.50 \% \\\hline\end{array}$
-Suppose the above asset is observed in the market trading with an expected return of 18%.What strategy would you suggest to profit from this situation,assuming the CAPM was the correct pricing model and the risk-free rate was 8%?

• A) buy the asset
• B) short-sell the asset
• C) buy the risk-free asset
• D) sell the market portfolio

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Definitions:

Urine

A liquid waste product produced by the kidneys that is excreted by the body through the process of urination.

Semen

The male reproductive fluid containing spermatozoa and seminal fluid.

Intravenous Pyelography

A radiographic examination of the kidneys, ureters, and urinary bladder using intravenous contrast material to view these structures.

Radiopaque Substance

A material that does not allow X-rays or other forms of radiation to pass through, appearing white or light on a radiograph.