Question: Consider a two factor model of expected returns where the risk free rate is 6% and the expected risk premiums on the factor portfolios are

Consider a two factor model of expected returns where the risk free rate is 6% and the expected risk premiums on the factor portfolios are 3% and 7%. If the factor portfolios are ideal and tradable, determine if an arbitrage opportunity exists for the portfolio given below and specify how can it be exploited.

portfolio	Bf1	Bf2	Expected return
A	1.4	0.8	0.41

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