Question
Assume that the following portfolios A and B are well diversified, with E[r a ] = 9% and E[r b ] = 11%. In a
Assume that the following portfolios A and B are well diversified, with E[ra] = 9% and E[rb] = 11%. In a one factor economy with ba= 0.8 and bb = 1.2 and a risk-free rate of 8% the following would be true:
| an arbitrage opportunity exists by borrowing and investing in portfolio B. | ||
| an arbitrage opportunity exists by going long in a combination of the risk-free asset and portfolio B and short in portfolio A. | ||
| an arbitrage opportunity exists by borrowing and investing in portfolio A. | ||
| an arbitrage opportunity exists by going long in a combination of the risk-free asset and portfolio A and short in portfolio B. |
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The Handbook Of Traditional And Alternative Investment Vehicles Investment Characteristics And Strategies
Authors: Mark J. P. Anson, Frank J. Fabozzi, Frank J. Jones
1st Edition
0470609737, 978-0470609736
