Please do Question 3

Q1 :

Suppose you are a money manager of a $5 million investment fund. The fund is invested in four funds with the following investments and betas: Stock Shares Price Per Share Beta A 100,000 $10 1.50 B 100,000 $20 0.85 C 75,000 $20 1.00 D 20,000 $25 1.60

Q3:

Use the information in question 1. There is a fund E with a beta of 1.20 and expected return of 12%. Using any combination of stock and T-bill, is there an arbitrage opportunity, and if there is, show how to exploit it with a base $1 million transaction (that is show exact number of stocks to trade).