Question: The following data were obtained for a one-factor CAPM model, and all portfolios are well-diversified. Suppose that another portfolio E is well diversified with a

The following data were obtained for a one-factor CAPM model, and

The following data were obtained for a one-factor CAPM model, and all portfolios are well-diversified. Suppose that another portfolio E is well diversified with a beta of 0.9 and expected return of 11%. (a) Why would this information imply that an arbitrage opportunity exists? (b) What is the optimal arbitrage strategy? (c) Calculate the profit of this arbitrage

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