How would you take advantage of the arbitrage opportunity

Reference no: EM132071056

Question: A regression of ABC stock's monthly returns against the return on the S&P500 Index given an alpha = 0.75% and beta = 1.3. Given that ABC stock rises by 6% during a period when the S&P500 rose by 4.25%, answer the questions below:

a. Is there an arbitrage opportunity on ABC stock? If so, show it.

b. How would you take advantage of the arbitrage opportunity?

Reference no: EM132071056

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