Create an arbitrage, Further let the correlation

Create an arbitrage

Assignment Help Financial Management

Reference no: EM131981187

Say there are two assets denoted by A and B. Let:

E(rA) = 10% E(rB) = 14% sA = 8% sB = 18%

Further let the correlation coefficient between the returns of A and B be equal to -1 (?A,B = -1). Lastly, let the risk-free rate be 3% (rf = 3%).

Create an arbitrage (earn a riskless profit which doesn't require use of your own money).

Reference no: EM131981187

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