Question: A)) Assume the APT model has one risk factor (). Portfolio A is in equilibrium, it has a = 1.1 and an E(RA) = 10%.

A)) Assume the APT model has one risk factor ().

Portfolio A is in equilibrium, it has a = 1.1 and an E(RA) = 10%.

Portfolio B is not in equilibrium, it has a = 1.1 and an E(RB) = 17%.

Portfolio B is ___________ and one should short _____________ and go long in _____________.

A. none of the answers listed here

B. overvalued; Portfolio B; Portfolio A

C. undervalued; Portfolio B; Portfolio A

D. undervalued; Portfolio A; Portfolio B

B)) Assume the APT model has one risk factor ().

Portfolio A is in equilibrium, it has a = 1.11 and an E(RA) = 12%.

Portfolio B is not in equilibrium, it has a = 1.11 and an E(RB) = 7%.

Portfolio B is ___________ and one should short _____________ and go long in _____________.

A. overvalued; Portfolio B; Portfolio A

B. undervalued; Portfolio B; Portfolio A

C. undervalued; Portfolio A; Portfolio B

D. none of the answers listed here

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