Question: pls ans all if not DO NOT take 1. Consider the single factor APT. Portfolio A has a beta of 1.1 and an expected return
pls ans all if not DO NOT take
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 |
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 |
3.
Consider an APT world with one systematic risk: MARKET risk. Expected return for the market portfolio is 8% and risk-free rate is 2%. A stock analyst estimates the following characteristics for the Portfolio ABC. Assume that the analyst estimates are correct.
| Portfolio | E(R) | Market BETA |
| ABC | 12.0% | 1.8 |
What is portfolio ABCs alpha?
| -1.2% | ||
| -0.8% | ||
| 0% | ||
| 0.8% | ||
| 1.2% |
Refer to Q3. Assume the market portfolio is tradable and that the analyst estimates are correct. Which of the following constitutes an arbitrage (zero-net investment) strategy (if any).
| Short sell ABC, buy Market portfolio, buy risk free rate | ||
| Short sell ABC, buy Market portfolio, borrow risk free rate | ||
| Short sell Market portfolio, buy ABC, buy risk free rate | ||
| Short sell Market portfolio, buy ABC, borrow risk free rate | ||
| None of the above constitutes an arbitrage strategy |
5.
Which of the statements about the Arbitrage Pricing Theory MUST BE TRUE? [I] There is only one systematic risk, the market risk. [II] Risk factors have positive loading. [III] In equilibrium, investors cannot make profits without taking risks.
| I only | ||
| II only | ||
| I and II only | ||
| II and III only | ||
| III only Answer |
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