Recall that the definition of arbitrage required the satisfaction of three conditions: one about weights, one...

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Finance

Recall that the definition of arbitrage required thesatisfaction of three conditions: one about weights, one about riskand one about returns. Consider the following scenario in aone-factor APT:
E[r]
B1
Asset X
3.7%
0.1
Asset Y
4.5%
2.1
Asset Z
14.9%
3.1
What is the expected return of an arbitrage portfolio composedof all three assets, X, Y and Z? Weights will be between +1 and-1.
Answer in percentage without the symbol, i.e. #.##% -->#.##

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Ans Following steps are taken to get arbitrage opportunityFirst of all optimal weights are taken so that factorsensitivity of combines See Answer

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Recall that the definition of arbitrage required thesatisfaction of three conditions: one about weights, one about riskand one about returns. Consider the following scenario in aone-factor APT:E[r]B1Asset X3.7%0.1Asset Y4.5%2.1Asset Z14.9%3.1What is the expected return of an arbitrage portfolio composedof all three assets, X, Y and Z? Weights will be between +1 and-1.Answer in percentage without the symbol, i.e. #.##% -->#.##