USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the Three

question 57

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas) .
The zero-beta return ( $\lambda$ 0) = 3 percent, and the risk premia are $\lambda$ 1 = 10 percent and $\lambda$ 2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50 percent in stock X, -100 percent in stock Y, and 50 percent in stock Z. The net arbitrage profit is

• A) $8.
• B) $5.
• C) $7.
• D) $12.
• E) $15.

---

Definitions:

Refurbish

The process of cleaning, renovating, or updating an item, particularly to restore it to a good condition or improve its functionality.

Terminated

Brought to an end or concluded, which can apply to contracts, employment, or any other agreement.

Security Company

A business that provides services related to the protection of physical property and assets, including surveillance, alarm systems, and private security personnel.

Alarm System

A device or set of devices designed to alert or warn individuals of potential danger, such as break-ins or fires.