Miss Natalia

(14)

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About Miss Natalia

Levels Tought:
Elementary,High School,College,University

Expertise:
Accounting,Business & Finance See all
Accounting,Business & Finance,Calculus,Computer Science,Environmental science,Health & Medical Hide all
Teaching Since: Apr 2017
Last Sign in: 359 Weeks Ago, 5 Days Ago
Questions Answered: 6064
Tutorials Posted: 6070

Education

  • Doctor of Education in Educational Leadership with a Specialization in Educational Technology
    Phoniex University
    Oct-1999 - Nov-2005

Experience

  • HR Executive
    a21, Inc.
    Nov-1998 - Dec-2005

Category > Business & Finance Posted 17 May 2017 My Price 10.00

Explain why X (from part i) of this question) is an arbitrage opportunity.

Assume that the following portfolios A and B are well diversified, with E[ra] = 9% and E[rb] = 11%.

In a one factor economy with βa = 0.8 and βb = 1.2 and a risk-free rate of 8%:

(a) establish an arbitrage. Especially, derive the exact holdings in A, B, and the risk free rate of a

new portfolio (called X) so that X is an arbitrage opportunity.

(b) Explain why X (from part i) of this question) is an arbitrage opportunity.

(c) Now assume that B is the market portfolio and A is a single stock (IBM). Draw the SML. Argue

why (or why not) you can still construct an arbitrage opportunity using A, B, and the risk-free

rate. Can you think of a different theory that might provide investment advice in this situation?

 

Answers

Miss Natalia
(14)
Status NEW Posted 17 May 2017 03:05 AM My Price 10.00

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