b) Three well-diversified portfolios have returns given by rere a+Bf1+Bf2, where i=A, B, C. The portfolio...
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b) Three well-diversified portfolios have returns given by rere a+B₁f1+B₂f2, where i=A, B, C. The portfolio alphas and betas are given in the Table below. B₁1 1 A a₁ B 0 0.5% 1 C -0.5% 1.5 1 The riskless rate is 2%. Is there an arbitrage opportunity? If so, construct an arbitrage strategy that gives a profit of $1. [Hint: construct a portfolio that has zero value and gives riskless profit of $1.] B21 0.5 0.5 b) Three well-diversified portfolios have returns given by rere a+B₁f1+B₂f2, where i=A, B, C. The portfolio alphas and betas are given in the Table below. B₁1 1 A a₁ B 0 0.5% 1 C -0.5% 1.5 1 The riskless rate is 2%. Is there an arbitrage opportunity? If so, construct an arbitrage strategy that gives a profit of $1. [Hint: construct a portfolio that has zero value and gives riskless profit of $1.] B21 0.5 0.5
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There is an arbit rage opportunity By short ing A and going long on B and C we c... View the full answer
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