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Consider the following data for a one-factor economy. All portfolios are well diversified. Portfolio E (r ) Beta A 12% 1.2 F 6% 0.0 Suppose

Consider the following data for a one-factor economy. All portfolios are well diversified.

Portfolio E (r) Beta

A 12% 1.2

F 6% 0.0

Suppose that another portfolio, portfolio E, is well diversified with a beta of .6 and expected return of 8%.

If an arbitrage opportunity exists, what percentage rate of return would you earn for free based on your arbitrage strategy?

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