Question: QUESTION 6b. Consider a one factor economy. (2) There is a third well-diversified portfolio C. Its beta is 1.2. It has a forecasted return of

QUESTION 6b.

Consider a one factor economy.

(2) There is a third well-diversified portfolio C. Its beta is 1.2. It has a forecasted return of 13%. Is there any arbitrage opportunity? If the answer is yes, how to construct the arbitrage portfolio?

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