Suppose in a Single Factor APT Model, Portfolio a Has

question 36

Multiple Choice

Suppose in a single factor APT model, portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate is 10%. If an investor wanted to take advantage of an arbitrage opportunity, he or she would take a short position in portfolio _____ and a long position in portfolio _____.

• A) B, A
• B) A, B
• C) A, A
• D) B, B

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