Total marks: 24 marks. Consider a one factor economy, (1) There are two well-diversified portfollos...
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Total marks: 24 marks. Consider a one factor economy, (1) There are two well-diversified portfollos A and Q. Their expected returns are 134 and 96 respectively. Their betas are.1.2 and 0.7, respectivey Both portfolios are farly priced. Calculate the risk free rate and the expected return of the factor portfclio. (12 marks) (2) There is a third well-diversified portfolio C, its beta is 0.9.7t has a forecasted return of 10 . ts there ary arbitrage oppertiantyi if the answor is yec bow to construct the arbitrage portfolio? (12 marks)
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