1. Assume ₁=0.6; ₂=1.2 and ₃=1.0.

Estimate the beta of an equally weighted portfolio

Build a defensive portfolio using the three securities. What are the weights and what is the beta of the resulting portfolio?

2.Using the CAPM model, are there -opportunities with the following i-security: E(r_m)=10%, rf=5%, _i=1.2 and E(r_i)=10%? If yes, what should you do? Complete your answer graphing the SML (security market line).

3.Assuming the following data, what should be the price of a European put on a stock that pays no dividends? Is there an arbitrage opportunity? Explain the strategy and determine the payoffs at maturity.

Actual value of the stock = US$ 70

Strike price = US$ 73

Duration = 4 months

Rf = 5% per year

p*=1.5 (market price of put)