Portfolio a Has a Beta of

question 27

Multiple Choice

Portfolio A has a beta of .2 and an expected return of 14%. Portfolio B has a beta of .5 and an expected return of 16%. The risk-free rate of return is 10%. If you manage a long-short equity fund and want 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

---

Definitions:

Capital Quality

The degree of excellence of physical and intellectual assets used in the production of goods or services, affecting overall productivity and efficiency.

Simon Kuznets

An economist known for his work on economic growth and for formulating the concept of Gross Domestic Product (GDP) as a measure of national income.

Economic Growth

An increase in the production of goods and services in an economy, typically measured by GDP.

Quality of Resources

The effectiveness, efficiency, and skills of economic resources, including labor, capital, and natural resources.