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Consider the following data for a one-factor economy. All portfolios are well
diversi ed.
Table 1: One-factor Economy
Portfolio E(r) Beta
A 10% 1.0
F 4 0
Suppose another portfolio E is well diversi ed with a beta of 2/3 and expected return of
9%. Would an arbitrage opportunity exist? If so, what would the arbitrage strategy be?

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