Bryan W. Redd
Investments Assignment #4
Dr. Malakhov
Spring 2010
BKM 7
23.
β
f= 0, so the riskfree rate is equal to the (E)return for Portfolio F.
An arbitrage
opportunity exists b/c the ratio for the risk premium to
β
e = 7.5% which is greater than
Portfolio A=6%.
Then by creating Portfolio G with =1
β
, take a long position in Portfolio E,
and short position in Portfolio F.
β
G = 1.5 × (2/3) = 1.0, the E(rG) = 11.5%, which is higher than Portfolio A (same ’s
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 Spring '11
 Hearth
 Arbitrage, Financial Markets

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