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 1

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 1 0 Asset 2 0.08 2 0 It is also known that the risk free rate is 4%. Identify whether there are any arbitrage opportunities. If yes, what is the arbitrage strategy. If no, explain why. [4 marks]

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