Question: 3. (10 marks) Are the following true or false? Explain. a. Stocks with a beta of zero offer an expected rate of return of zero.

3. (10 marks) Are the following true or false? Explain. a. Stocks with a beta of zero offer an expected rate of return of zero. (5 marks) b. The CAPM implies that investors require a higher return to hold highly volatile securities. (5 marks) 4. (20 marks) Consider the following data for a one-factor economy. All portfolios are well diversified. Portfolio Elr) Beta 10% 1.0 Suppose another portfolio E is well diversified with a beta of 2/3 and expected return of 9%. Would an arbitrage opportunity exist? If so, what would the arbitrage strategy be

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