Question: Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 22%. Portfolio B has an expected return of

  1. Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 22%. Portfolio B has an

    expected return of 17%. The risk-free rate of return is 4%.

    1. Would an arbitrage opportunity exist if Portfolio B has a beta of 1.2? If so, what would the arbitrage

      strategy be?

    2. Assume all arbitrage opportunities are ruled out. Calculate the beta of Portfolio B

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