Security A has a beta of 1.0 and an expected return of 12%. Security B has a beta of 0.75 and an expected return of 11%.
The risk-free rate is 6%. Explain the arbitrage opportunity that exists; explain how an investor can take advantage of it. Give
specific details about how to form the portfolio, what to buy and what to sell assuming that the company-specific risk can be
neglected.© BrainMass Inc. brainmass.com June 3, 2020, 8:46 pm ad1c9bdddf
An arbitrage opportunity exists because it is possible to form a portfolio ofsecurity A and the risk-free asset that has a ...
This posting gives solution to a arbitrage oppurtunity problem, given the beta and expected rate of return for two securities.