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Suppose there are two assets under the single-factor model, the model estimations are shown in the following table. a b e Asset 1 0.10 2
Suppose there are two assets under the single-factor model, the model estimations are shown in the following table.
a | b | e | |
Asset 1 | 0.10 | 2 | 0 |
Asset 2 | 0.08 | 1 | 0 |
It is also known that the risk free rate is 4%.
Identify whether there is any arbitrage opportunities. If yes, what is the arbitrage strategy. If no, explain why.
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