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Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)^: + (0.82
Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2) have the following relationship: E(RA) = (1.1)^: + (0.82 E(Re) = (0.6)A: + (0.5)42 E(RC) = (1.6)A: +(1.1312 a. If A: = 4% and 12 = 3%, what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $40 and will not pay dividend in the next year. Do not round intermediate calculations. Round your answers to the nearest cent. Expected price for Stock A: $ 42.72 Expected price for Stock B: $ 41.56 Expected price for Stock C: $ 43.88 . Suppose that you know that next year the prices for Stocks A, B, and C will actually be $25.37, $20.66, and $20.42. Assume that you can use the proceeds from any necessary short sale. Determine the riskless, arbitrage investment to take advantage of these mispriced securities. In order to create a riskless arbitrage investment, an investor would short 1 share of B and I share of C, and buy 2 shares of A. Va riskless arbitrage investment. What is the profit from your investment? Round your answer to the nearest cent. Grade it Now Save & Continue Continue without saving
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