What would an arbitrager do

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1. Suppose you held a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolio's beta is 1.03. Now suppose you decided to sell one of the stocks in your portfolio with a beta of 1.0 for $7,500 and use the proceeds to buy another stock with a beta of 0.76. What would your portfolio's new beta be? Do not round intermediate calculations. Round your answer to two decimal places.

2. Price a call using the two-period binomial model assuming the following data: S0 = 129, K=80, U=1.5, D=0.5 and R=1.1. If the call option were priced at $55 in the market, what would an arbitrager do?

Reference no: EM131997707

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