Portfolio a Has a Beta of 0

question 36

Multiple Choice

Portfolio A has a beta of 0.2 and an expected return of 14%.Portfolio B has a beta of 0.5 and an expected return of 16%.The risk-free rate of return is 10%.If you manage a long/short equity fund and 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:

Voting Shares

Shares of a company that give the shareholder the right to vote on corporate matters and board elections.

Associate

An entity over which an investor has significant influence, typically evidenced by owning 20% to 50% of the voting stock, but not control.

Remaining

The portion or quantity left over or unallocated after other parts have been accounted for or allocated.

Investor

An individual or entity that allocates capital with the expectation of receiving financial returns, usually through stocks, bonds, or real estate.