Consider the single factor APT. Portfolio A has a beta of 1.3 and an expected return of 21%. Portfolio B has a beta of .7 and an expected return of 17%. The risk-free rate of return is 8%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio and a long position in portfolio .
A. B;A
B. A;B
C. B;B
D. A; A
The portfolio weight in A is
The portfolio weight in B is
The portfolio weight in risk-free is
Answers: 3
= 40% (short) 
= 60% (long) 
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Consider the single factor APT. Portfolio A has a beta of 1.3 and an expected return of 21%. Portfol...
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