Assume we are in the fama$-$French world. The expected returns on $Rm,SMB,$ and $HML$ are

$12\%,10\%,$ and $8\%$ respectively. The risk free rate is $2\%.$ There is a well$-$diversified portfolio,

A$,$ whose factor loadings on the three factors are $0\mathrm{.}6,1\mathrm{.}1$ and $-0\mathrm{.}5$ respectively. Based on

fundamental analysis, if you buy today, you are forecasting portfolio $A$ to earn Based on

fundamental analysis, if you buy today, you are forcasting portfolio A to earn $20\%.$

What the expected return of portfolio A given Fama$-$French asset pricing model?

Is there an arbitrage opportunity? Show clearly if portfolio A is underpriced or

overpriced or correctly priced.

If $A$ is mispriced, clearly explain how an investor can take advantage of the arbitrage

opportunity. Specifically, give details about the long$-$short arbitrage portfolio: what

portfolio to Buy and what portfolio to Sell. If there are multiple portfolios that go into

the long side and the short side, please give all the components and the $ you put

each component.