I ONLY NEED QUESTION 12 ANSWERED. The answer for question 11 is below: 11.

When beta = 0, there is no risk, so it is risk free

Since beta = 0, the expected return for Portfolio F equals the risk-free rate

For Portfolio A, the ratio of risk premium is (12% 6%)/1.2

=> .12 - .06/1.2

=> .06/1.2 = .05 x 100 = 5%

For Portfolio E, the ratio is lower at (8% 6%)/.6

=>.08 - .06/.6

=> .02/.6 = .0333 x 100 = 3.33%

This implies that an arbitrage opportunity exists.

11. Consider the following data for a one-factor economy. All portfolios are well diversified. Portfolio E() 4 12% Beta 1.2 F 0.0 Suppose that another portfolio, portfolio E, is well diversified with a beta of 0.6 and expected return of 8%. Would an arbitrage opportunity exist? If so, what would be the arbitrage strategy? 12. Continue to use the data in previous example. Now consider portfolio G, which is well diversified with a beta of 13 and expected return of 5%. Does an arbitrage opportunity exist? If so, what is the arbitrage strategy? Show that the strategy results in risk-free profits with zero net investment