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Problem $7-12$

Suppose that three stocks $($A$,$ B$,$ and C$)$ and two common risk factors $(1$ and $2)$ have the following relationship:

E$($RA$)=(1\mathrm{.}0)\backslash$lambda $1+(0\mathrm{.}7)\backslash$lambda $2$

E$($RB$)=(0\mathrm{.}7)\backslash$lambda $1+(0\mathrm{.}6)\backslash$lambda $2$

E$($RC$)=(1\mathrm{.}3)\backslash$lambda $1+(0\mathrm{.}8)\backslash$lambda $2$

If $\backslash$lambda $1=4\%$ and $\backslash$lambda $2=3\%,$ what are the prices expected next year for each of the stocks? Assume that all three stocks currently sell for $$20$ and will not pay dividend in the next year. Do not round intermediate calculations. Round your answers to the nearest cent.

Expected price for Stock A: $

Expected price for Stock B: $

Expected price for Stock C: $

Suppose that you know that next year the prices for Stocks A$,$ B$,$ and C will actually be $$45\mathrm{.}73,$ $$40\mathrm{.}88,$ and $$41\mathrm{.}26.$ Assume that you can use the proceeds from any necessary short sale. Determine the riskless, arbitrage investment to take advantage of these mispriced securities$.$

In order to create a riskless arbitrage investment, an investor would a riskless arbitrage investment.

What is the profit from your investment? Round your answer to the nearest cent.

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