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What is the risk premium on portfolio

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Assume the following single-factor model, where M represents the market factor (well-diversified), E[R_M ] is the market risk premium, and E[R_P] is the excess return on a well-diversified portfolio: E[R_P ]=α_P+β_P E[R_M ]=0.02+1.8*E[R_M ] Estimate the risk premium on a zero-beta portfolio. Show how one can use this zero-beta portfolio as an arbitrage opportunity. Describe the APT assumptions regarding this arbitrage opportunity. If the market has a risk premium of 6%, what is the risk premium on portfolio P, assuming no arbitrage.

Reference no: EM133116143

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