Consider the Single Factor APT

question 61

Multiple Choice

Consider the single factor APT. 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 8%. If you 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

---

Definitions:

Inferiority

A feeling of lower status or quality compared to others.

Confidence

The feeling or belief that one can rely on someone or something; self-assurance in one's own abilities or qualities.

Unconditional Regard

An empathetic support and acceptance given to others without any conditions or judgments.

Vulnerable

The state of being open to harm, damage, or emotional hurt due to various factors or circumstances.