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Q#4 Assume that the following two-index model describes returns: R =a+b+bI+e Assume that the following three portfolios are observed. Portfolio P Q R Expected
Q#4 Assume that the following two-index model describes returns: R =a+b+bI+e Assume that the following three portfolios are observed. Portfolio P Q R Expected Return bil 12.0 1 0.5 13.4 3 0.2 12.0 3 -0.5 bi2 a. Find the equation that must describe equilibrium returns. b.Illustrate the arbitrage opportunities that would exist if a portfolio called D with the following properties were observed: RD=10 bp1=2 bD2=2
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Quantitative Investment Analysis
Authors: Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle
3rd edition
111910422X, 978-1119104544, 1119104548, 978-1119104223
