Portfolio a Has a Beta of 1

question 48

Multiple Choice

Portfolio A has a beta of 1.3 and an expected return of 21%.Portfolio B has a beta of 0.7 and an expected return of 17%.The risk-free rate of return is 9%.If a hedge fund manager wants to take advantage of an arbitrage opportunity,she 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:

Net Change Column

This refers to a column in financial reporting that shows the difference in a particular financial metric's value from one period to the next.

Daily Stock Report

A summary of the performance of stocks and financial markets, usually provided on a daily basis.

Commission Charges

Fees paid to brokers or agents for their service in facilitating transactions, such as buying or selling securities.

Total Cost

The complete expense incurred in the production or acquisition of goods or services, including all related costs.