USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas).
The zero-beta return ($\lambda$0) = 3 percent, and the risk premia are $\lambda$1 = 10 percent and $\lambda$2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50 percent in stock X, -100 percent in stock Y, and 50 percent in stock Z. The net arbitrage profit is
A) $8.
B) $5.
C) $7.
D) $12.
E) $15.

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas).
  The zero-beta return ($\lambda$0) = 3 percent, and the risk premia are $\lambda$1 = 10 percent and $\lambda$2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. Assume that you wish to create a portfolio with no net wealth invested and the portfolio that achieves this has 50 percent in stock X, -100 percent in stock Y, and 50 percent in stock Z. The net arbitrage profit is
A) $8. 
B) $5. 
C) $7. 
D) $12. 
E) $15.

Quizplus · Accepted Answer

The portfolio is constructed with 50% in stock X, -100% in stock Y, and 50% in stock Z, which means you are shorting stock Y. The net arbitrage profit is calculated based on the price differences and the weights in the portfolio, resulting in a profit of $8.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the Three

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the Three