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Consider the following data for a single-factor economy. All portfolios are well diversified Suppose another portfolio E is well diversified with a beta of 0.8
Consider the following data for a single-factor economy. All portfolios are well diversified Suppose another portfolio E is well diversified with a beta of 0.8 and expected return of 8%
Portfolio | E(r) | Beta |
A | 12% | 1.1 |
F | 6% | 0 |
Would an arbitrage opportunity exist? If so what would the arbitrage strategy be?
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