Question: Consider the single factor APT. Portfolio A has a beta of 1.2 and an expected return of 10%. Portfolio B has a beta of 0.8

Consider the single factor APT. Portfolio A has a beta of 1.2 and an expected return of 10%. Portfolio B has a beta of 0.8 and an expected return of 8%. Both portfolios are well diversified. The risk-free rate of return is 4%.

What, if any, is the arbitrage strategy?

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