Question: QUESTION 1: ARBITRAGE AND THE APT Part A Suppose the single-factor APT is the correct model. However, the way the APT becomes the correct model

QUESTION 1: ARBITRAGE AND THE APT Part A Suppose the single-factor

QUESTION 1: ARBITRAGE AND THE APT Part A Suppose the single-factor APT is the correct model. However, the way the APT becomes the correct model is by investors exploiting arbitrage opportunities. Suppose well-diversified portfoli A has a beta value on the factor F of BA = 2, and an expected return of E(ra) = 10%. Asset B has a beta of BB = 1.2 and expected return Erb) = 6.5%. Suppose return to risk-free asset is 1%. Is there arbitrage here

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