Question: Suppose that asset returns satisfy the single factor model: E() + BiF+ei. and let P and represent two well diversified portfolios. Suppose that Bp Erg).

Suppose that asset returns satisfy the single factor model: E() +

Suppose that asset returns satisfy the single factor model: E() + BiF+ei. and let P and represent two well diversified portfolios. Suppose that Bp Erg). a. Show there exists an arbitrage opportunity provided that investors can borrow at a rate of interest that is below Era) b. Does there exist an arbitrage opportunity if the borrowing rate is greater than E(ra)? raged to in below forhold borrowing ra

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