Refer to the graph.Each labeled point represents a different asset.For which of these assets would we not expect arbitrage to change the average expected rate of return?
A)E only
B)D, E, and F
C)E, G, and H
D)D, E, F, G, and H

Question

Refer to the graph.Each labeled point represents a different asset.For which of these assets would we not expect arbitrage to change the average expected rate of return?
A)E only 
B)D, E, and F 
C)E, G, and H 
D)D, E, F, G, and H

Quizplus · Accepted Answer

Based on the graph, asset E is on the efficient frontier, meaning that it offers the highest expected return for a given level of risk. Therefore, arbitrage would not significantly impact the average expected rate of return for asset E as it is already well-priced and efficient. Similarly, assets G and H have low levels of expected return and high levels of risk, making them less attractive to investors and less likely to be impacted by arbitrage. Thus, we would not expect arbitrage to significantly change the average expected rate of return for assets E, G, and H. Therefore, the answer is C.

Refer to the Graph