Question
Suppose rf = 4% and a well-diversified portfolio P has a beta of 1.3 and an alpha of 1% when regressed against a systematic factor
Suppose rf = 4% and a well-diversified portfolio P has a beta of 1.3 and an alpha of 1% when regressed against a systematic factor S. Another well diversified portfolio Q has a beta of 0.8 and an alpha of 1.54%.
- Using the above information, explain if there is any arbitrage opportunity.
4 marks
- If there is an arbitrage opportunity, what action would you take to capitalise on this opportunity?
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Financial Institutions Management A Risk Management Approach
Authors: Anthony Saunders, Marcia Cornett, Otgo Erhemjamts
10th Edition
1260013820, 978-1260013825
