Question
Consider two well-diversified portfolios, A and C, r f = 4%, E ( r A ) = 10%, E ( r C ) = 6%,
Consider two well-diversified portfolios, A and C,
rf= 4%,E(rA) = 10%,E(rC) = 6%,bA= 1,bC=
If the maximum amount you can borrow is $1,000,000,what is your arbitrage strategy and profit?
A.Long1 A,short0.5C,short0.5rf,profit=$5,000
B.Long1C,short0.5A,short0.5rf,profit=$5,000
C.Long0.5C,Long0.5rf, short 1 A,profit=$10,000
D.Long 0.5A,Long 0.5rf, short 1 C,profit=$10,000
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Contemporary Financial Management
Authors: R. Charles Moyer, James R. McGuigan, Ramesh P. Rao
13th edition
1285198840, 978-1285198842
