Consider a single factor APT Portfolio A has a beta of 2 0 and an expected return of 22 Portfolio B has a beta of 1 5 and an expected return of 17 The risk free rate of return is 4 Please answer the following questions Portfolio beta R Rf A 2 22 4 B 1 5 17 4 Choose all correct answers Please note that each incorrect answer will reduce the score by 10 a The arbitrage profit is 0 5 b The ratio of risk premium to beta for portfolio B is 7 67 c The arbitrage strategy is to short portfolio A and B and use the proceeds to take a long position in risk free asset d The arbitrage profit is 5 e The ratio of risk premium to beta for portfolio A is 9 f The arbitrage strategy it to short portfolio A and use the proceeds to take a long position (50 ) in A and (50 ) in risk free asset g The ratio of risk premium to beta for portfolio A is 10 h The arbitrage strategy is to short portfolio B and use the proceeds to take a long position (75 ) in A and (25 ) in risk free asset i For portfolio A , the ratio of risk premium to beta is 10 j The ratio of risk premium to beta for portfolio B is 8 67

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Question: Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 22%. Portfolio B has a beta of 1.5

Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 22%. Portfolio B has a beta of 1.5 and an expected return of 17%. The risk-free rate of return is 4%. Please answer the following questions.

Portfolio	beta	R	Rf
A	2	22%	4%
B	1.5	17%	4%

Choose all correct answers. Please note that each incorrect answer will reduce the score by 10%

	a.	The arbitrage profit is 0.5%
	b.	The ratio of risk premium to beta for portfolio B is 7.67%
	c.	The arbitrage strategy: is to short portfolio A and B and use the proceeds to take a long position in risk free asset
	d.	The arbitrage profit is 5%
	e.	The ratio of risk premium to beta for portfolio A is 9%
	f.	The arbitrage strategy it to short portfolio A and use the proceeds to take a long position (50%) in A and (50%) in risk free asset
	g.	The ratio of risk premium to beta for portfolio A is 10%
	h.	The arbitrage strategy is to short portfolio B and use the proceeds to take a long position (75%) in A and (25%) in risk free asset
	i.	For portfolio A , the ratio of risk premium to beta is 10%
	j.	The ratio of risk premium to beta for portfolio B is 8.67%

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