A)

"If an asset is overpriced compared to CAPM prices, after the arbitrage trade involving the asset, its actual forecasted return "

		Increases
		Decreases
		"Depends, could increase or decrease "
		None of the above

B)

Consider a CAPM universe. The variance of the return on the factor portfolio is .03. The beta of a well-diversified portfolio is 3. The variance of the return of the well-diversified portfolio is

		0.21
		0.24
		0.27
		None of the above