1. Consider the single factor APT. Portfolio A has a beta of 1.1 and an expected return of 15%. Portfolio B has a beta of 0.7 and an expected return of 12%. The risk-free rate of return is 5%. If you wanted to take advantage of an arbitrage opportunity, you should take a __ position in portfolio A and a __ position in portfolio B.

   		Long, Short
   		Short, Long
   		Long, Long
   		Short, Short
   		There is no arbitrage opportunity

1 points

QUESTION 2

There is a single MARKET risk factor in the economy. In the table below, all portfolios are well-diversified and the risk-free rate is 4%. If you were to form an arbitrage strategy, you would:

Portfolio	E(R)	Market BETA
ABC	11%	1.2
XYZ	11.5%	1.5
Market	9%	1

		Buy ABC, short sell Market portfolio, borrow risk free rate
		Buy ABC, short sell Market portfolio, buy risk free rate
		Short sell XYZ, buy Market portfolio, borrow risk free rate
		Short sell XYZ, buy Market portfolio, buy risk free rate
		None of the above