Problem 17

Consider the single factor APT. Portfolio A has a beta of 1.3 and an expected return of 21%.

Portfolio B has a beta of .7 and an expected return of 17%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________

and a long position in portfolio _________.

A. B;A B. A;B C. B;B

D. A; A

The portfolio weight in A is__________

The portfolio weight in B is_________

The portfolio weight in risk-free is________