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Please show all equations and work as needed. Assume that A and B are two well-diversified portfolios and that the risk-free rate is 8%. PortfolioExpected Returm 1.00 18% 12% 0.50 In this situation,...

Please show all equations and work as needed.

Assume that A and B are two well-diversified portfolios and that the risk-free rate is 8%. PortfolioExpected Returm 1.00 18%

Assume that A and B are two well-diversified portfolios and that the risk-free rate is 8%. PortfolioExpected Returm 1.00 18% 12% 0.50 In this situation, would you conclude that there exists an arbitrage opportunity involving the described securities? If your answer is affirmative, show the strategy that you would use to exploit such arbitrage. If your answer is negative, show why that is the case
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According to A:
18%=8%+1*market risk premium
=>market risk premium=10%

So, B's return should be=8%+0.5*10%=13%

But as B's return is 12%, so B is overvalued

Short sell B and buy/long A

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Please show all equations and work as needed. Assume that A and B are two well-diversified portfolios and that the risk-free rate is 8%. PortfolioExpected Returm 1.00 18% 12% 0.50 In this situation,...
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