Question: 1. Given a one-factor economy, determine whether the three well-diversified assets listed below are correctly priced (10 marks), and indicate an arbitrage transaction that could

1. Given a one-factor economy, determine whether the three well-diversified assets

1. Given a one-factor economy, determine whether the three well-diversified assets listed below are correctly priced (10 marks), and indicate an arbitrage transaction that could be used to profit from this pricing (10 marks). The risk-free return is 4%, while the factor premium is 10%. (Total 20 marks) Asset Factor sensitivity Return 1.0 1.2 0.6 13% 16% 10%

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