Posted by **Anonymous** on Sunday, August 15, 2010 at 5:05pm.

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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