QUESTION 22

1. There is a single MARKET risk factor in the economy. In the table below, all portfolios are well-diversified and the risk-free rate is 4%. If you were to form an arbitrage strategy, you would:

   Portfolio	E(R)	Market BETA
   ABC	11%	1.2
   XYZ	11.5%	1.5
   Market	9%	1

   	a	Buy ABC, short sell Market portfolio, borrow risk free rate
   	b	Buy ABC, short sell Market portfolio, buy risk free rate
   	c	Short sell XYZ, buy Market portfolio, borrow risk free rate
   	d	Short sell XYZ, buy Market portfolio, buy risk free rate
   	e	None of the above