(10%) Question 4: Assume that the returns of the following four well-diversified portfolios are generated by a two-factor model. Factor 1 sensitivity Factor 2 sensitivity Expected return Portfolio A 1.5 1.5 13% 1.6 0.9 18% 1.0 1.0 10% 2.0 1.0 12% John Snow decided to create an arbitrage portfolio by investing in portfolios A, B, C and D. When Aria Stark asked him what was his portfolio, John only revealed that he invested $20 million in portfolio A, but did not say his holdings in other portfolios. What is the profit on John's arbitrage portfolio? a) $13 million b) $2.6 million c) $13.25 million d) $5.2 million e) $7.2 million End of Ouestion 4 (10%) Question 4: Assume that the returns of the following four well-diversified portfolios are generated by a two-factor model. Factor 1 sensitivity Factor 2 sensitivity Expected return Portfolio A 1.5 1.5 13% 1.6 0.9 18% 1.0 1.0 10% 2.0 1.0 12% John Snow decided to create an arbitrage portfolio by investing in portfolios A, B, C and D. When Aria Stark asked him what was his portfolio, John only revealed that he invested $20 million in portfolio A, but did not say his holdings in other portfolios. What is the profit on John's arbitrage portfolio? a) $13 million b) $2.6 million c) $13.25 million d) $5.2 million e) $7.2 million End of Ouestion 4