Question
Suppose a well diversified portfolio P has a beta of 1.2 and an alpha of 0.05. Assume that stock returns depend on a single market
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Suppose a well diversified portfolio P has a beta of 1.2 and an alpha of 0.05. Assume that stock returns depend on a single market risk factor as per the APT. Explain how you would make an arbitrage profit by taking a position in the portfolio P, a position in the market index, and a position in T-bills.
Please write out the answer on paper. Thank you.
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International Finance
Authors: Maurice D. Levi
4th Edition
