Financial Economics Problem

Problem 2 (10 points) Suppose Arbitrage Prieing Theoryr is valid in a simple market. Ammne the excess return on portfolio i follows single factor model with market faetor M. The riskfree rate is 4%. There are two portfolios A and B with following information: {a} Suppose that the standard deviation is 5,1,; = 243% on market portfolio. l[TJompute the variance on each portfolio. {b} Suppose portfolio A and B are welldiversied portfolios, compute their variance and excess return, given a\" = 20% and ER\") 2 ZINE on market portfolio. {o} Is there an arbitrage opportunity in the market? Suppose we don't know any infor mation about the market portfolio now, but A and E are still welldiversied portfolios. Explain it