Which of the statements about the Arbitrage Pricing Theory MAY BE TRUE? [I] There is only one systematic risk, the market risk. [II] A risk factor portfolio is sensitive to another risk factor portfolio. [III] A well-diversified portfolio's expected return has a non-linear relationship with a risk factor portfolio.

		I only
		II only
		I and II only
		II and III only
		I, II, and III

Consider the single factor APT. Portfolio A has a beta of 1.2 and an expected return of 15%. Portfolio B has a beta of 0.7 and an expected return of 12%. Return on the risk factor portfolio is 14% and the risk-free rate of return is 5%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________.

		A, A
		A, B
		B, A
		B, B
		There is no arbitrage opportunity