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Question
Consider the single factor APT. Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio__________ and a long position in portfolio _________.
A. A; A
B. A; B
C. B; A
D. B; B
Answer
This answer is hidden. It contains 2 characters.
Related questions
Q:
Passive investors with well-diversified international portfolios _________.
A. can safely ignore all political risk in emerging markets
B. can expect very large diversification gains from their international investing
C. do not need to be concerned with hedging exposure to foreign currencies
D. can expect returns to be better than the EAFE on a consistent basis
Q:
Suppose that U.S. equity markets represent about 35% of total global equity markets and that the typical U.S. investor has about 95% of her portfolio invested only in U.S. equities. This is an example of _________.
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C. active management
D. passive management
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B. foreign exchange risk
C. market risk
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Q:
EAFE stands for _______.
A. Equity and Foreign Exchange
B. Europe, Australasia, Far East
C. Europe, Asian, Foreign Exchange
D. Europe, American, Far East
Q:
What is the proper strategy to capture alpha given the following data? A portfolio generates an annual return of 14%, a beta of 1.5, and the market index returns 12%. The risk free rate is 3%.
A. long the index
B. short the portfolio
C. short the index
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Q:
Consider a hedge fund with $200 million at the start of the year. The benchmark S&P 500 Index was up 16.5% during the same period. The gross return on assets is 21%, and the expense ratio is 2%. For each 1% above the benchmark return, the fund managers receive a .1% incentive bonus.
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Q:
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Q:
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B. I and II only
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Q:
A restriction under which investors cannot withdraw their funds for as long as several months or years is called __________.
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Q:
Which of the following typically employ(s) significant amounts of leverage?
I. Hedge funds
II. Equity mutual funds
III. Money market funds
IV. Income mutual funds
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Q:
One year U.S. interest rates are 7%, and European interest rates are 5%. The spot euro direct exchange rate quote is 1.30 and the 1-year forward rate direct quote is 1.25. If you can borrow either $1 million or €1 million to start with, what would be your dollar profits from interest arbitrage based on these data?A. $60,384B. $42,973C. $68,422D. $78,500
Q:
WEBS differ from mutual funds in that:
I. WEBS can be shorted.
II. WEBS trade continuously on the AMEX.
III. WEBS are passively managed.
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B. II and III only
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Q:
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Q:
In the PRS financial risk ratings, the United States rates poorly because of the U.S. ________.
I. Large budget deficit
II. Large trade deficit
III. Large amount of total debt
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Q:
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Q:
The risk-free rate in the United States is 4%, and the risk-free rate in Japan is 1.2%. If the spot rate of yen to dollars is 105, what is the likely yen-per-dollar forward rate?
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
If the S&P 500 Index futures contract is overpriced relative to the spot S&P 500 Index, you should __________.
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B. sell all the stocks in the S&P 500 and buy call options on S&P 500 Index
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Q:
An investor would want to __________ to exploit an expected fall in interest rates.
A. sell S&P 500 Index futures
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Q:
You are currently long in a futures contract. You instruct a broker to enter the short side of a futures contract to close your position. This is called __________.
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Q:
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Q:
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Q:
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B. stock prices may fall by a larger amount than the model assumes
C. stock prices evolve continuously in today's actively traded markets
D. stocks with lower exercise prices are more likely to pay dividends