1. Both portfolios A and B are well diversified and fairly priced, and their information is shown 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

1. Based on the CAPM model, is portfolio C overpriced or underpriced?
2. 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.
3. Based on the arbitrage strategy you answered in the last question, compute the arbitrage profit.