Portfolio a Has a Beta of 1

question 1

Multiple Choice

Portfolio A has a beta of 1.3 and an expected return of 21%. Portfolio B has a beta of .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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