1.

To take advantage of an arbitrage opportunity, an investor would:

[I] construct a zero-investment portfolio that will yield a sure profit.

[II] short sell the asset in the high-priced market and buy it in the low-priced market.

[III] short sell the asset in the low-priced market and buy it in the high-priced market.

Select one:

a. [III] only.

b. [I] and [II] only.

c. [II] only.

d. [I] only.

e. [I] and [III] only.

2.

___________ a relationship between expected return and risk.

Select one:

a. APT stipulates

b. CAPM stipulates

c. Both CAPM and APT stipulate

d. Neither CAPM nor APT stipulate

e. No pricing model has been found.