Question: Suppose there are two assets under the single-factor model, the model estimations are shown in the following table. a b e Asset 1 0.10 2

Suppose there are two assets under the single-factor model, the model estimations are shown in the following table.

a b e
Asset 1 0.10 2 0
Asset 2 0.08 1 0

It is also known that the risk free rate is 4%.

Identify whether there is any arbitrage opportunities. If yes, what is the arbitrage strategy. If no, explain why.

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