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Question 4 (11 marks) Consider a single factor APT. Portfolio A has a beta of 1 and an expected return of 14%. Portfolio B has

Question 4 (11 marks)

Consider a single factor APT. Portfolio A has a beta of 1 and an expected return of 14%. Portfolio B has a beta of 1.3 and an expected return of 14%. The risk-free rate is 3%. Is there any arbitrage opportunity? If yes, what is the arbitrage profit if the amount of arbitrage is $1m? Show your steps clearly.

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