Socks Seybold owns a portfolio with the following characteristics. (Assume that returns are generated by a one-factor

Question:

Socks Seybold owns a with the following characteristics. (Assume that returns are generated by a one-factor model.)

Socks Seybold owns a portfolio with the following characteristics. (Assume

Socks decides to create an arbitrage portfolio by increasing the holdings of security A by .2.
a. What must be the weights of the other two securities in Socks's arbitrage portfolio?
b. What is the expected return on the arbitrage portfolio?
c. If everyone follows Socks's buy-and-sell decisions, what will be the effects on the prices of the three securities?

Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...