What action would you take to capitalise on this opportunity

Assignment Help Finance Basics

Reference no: EM133251591

Question - Suppose rf = 5% and a well-diversified portfolio P has a beta of 1.5 and an alpha of 1% when regressed against a systematic factor S. Another well diversified portfolio Q has a beta of 1 and an alpha of 1.58%.

1. Using the above information, explain if there is any arbitrage opportunity.

2. If there is an arbitrage opportunity, what action would you take to capitalise on this opportunity?

Reference no: EM133251591

Questions Cloud

What would be the annual interest tax shield to salinas : Salinas currently faces an effective tax rate of 40%. What would be the annual interest tax shield to Salinas if it goes through with the debt issuance

How did religion affect various parts of the colonies : HIS 320 CUNY John Jay College of Criminal Justice How did religion affect various parts of the colonies and the criminal justice system?

What is growth rate that will be used to calculate interest : For each of the changes in the index over the segment term listed below, what is the growth rate that will be used to calculate your interest credits

Describe abuse affects childrens development : Describe how abuse affects children's development. Contrast the three views of language.

What action would you take to capitalise on this opportunity : Suppose rf = 5% and a well-diversified portfolio P has a beta of 1.5. What action would you take to capitalise on this opportunity

What ways could you apply operant conditioning principles : In what ways could you 'apply' the operant conditioning principles as a parent to-decrease the bad behavior while in the grocery store.

How much money do you need to deposit into your account : How much money do you need to deposit into your investment account today if you wish to withdraw $18,000 a year for 20 years

How would you advise in terms of choice of crypto : If Amazon decides to enter the crypto market, how would you advise in terms of choice of crypto, product market strategy and regulatory strategy

What percentage of the total risk from abc stock : The Beta was 0.90 and the standard error was 0.21. What percentage of the total risk from ABC stock can be diversified away

User Account

All Pages