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Assume that two-factor APT holds. There are no arbitrage opportunities. The independent economic factors are F1 and F2, respectively. The following information is available about
Assume that two-factor APT holds. There are no arbitrage opportunities. The independent economic factors are F1 and F2, respectively. The following information is available about three well-diversified portfolios:
Portfolio | Expected Return | on F1 | on F2 |
A | 13% | 1.0 | 0.5 |
B | 18% | 2.0 | 0.5 |
C | 21% | 1.0 | 1.5 |
D | ?? | 1.5 | 1.5 |
Assume that a risk-free asset exists.
Consider a zero-beta portfolio consisting of A, B, and C only. The portfolio weight of asset A is A. 0.5 B. 2.5 C. 1 D. -0.5
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