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What is the factor risk premium in economy

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Reference no: EM132696259

Consider the following data for an economy where a one factor APT holds. All portfolios are well diversified. Portfolio A) Expected return is 10% and beta is 1.0 Portfolio F) Expected return is 8% and the beta is 0.6

a) What is the factor risk premium in this economy?

b) What is the risk free rate in this economy?

c) Suppose another portfolio E is well diversified with a beta of 0.8 and an expected return of 10%. Would an arbitrage opportunity exist? If yes, explain what would be your arbitrage strategy?

Reference no: EM132696259

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