2. (12 points) Both portfolios A and B are well diversified and fairly priced, their expected returns and betas are as shown in the table below. Suppose another portfolio C is well diversified with a beta of 1.5 and expected return of 15%. Portfolio E(r) Beta A 5% 0 B 13% 1.0 A) Based on the CAPM model, would an arbitrage opportunity exist? Must explain why? (3 points) B) Design a zero-cost and zero-risk arbitrage strategy that exploits the mispricing of portfolio C. Assume you would buy or short sell $2000 of portfolio C. (6 points) C) Based on the arbitrage strategy in #B, compute the arbitrage profit. (3 points)