An arbitrage portfolio exists,including an asset A with a total market value of $60 000 and 100 other assets with a combined market value of $850 000.Assume that asset A is mispriced,with a pricing error of 17%,while the remainder of the assets are priced correctly according to the factor structure.What is the arbitrage portfolio pricing error?

A) $ 10.1 \% $
B) $ 94.5 \% $
C) $ 1.1 \% $
D) $ 11.2 \% $

Question

An arbitrage portfolio exists,including an asset A with a total market value of $60 000 and 100 other assets with a combined market value of $850 000.Assume that asset A is mispriced,with a pricing error of 17%,while the remainder of the assets are priced correctly according to the factor structure.What is the arbitrage portfolio pricing error?

A) $ 10.1 \% $
B) $ 94.5 \% $
C) $ 1.1 \% $
D) $ 11.2 \% $

Quizplus · Accepted Answer

Following example 9.5,the arbitrage pricing error can be found according to: (60000/910000)0.17 + (850000/910000)0.00 = 0.011 or 1.1%.

An Arbitrage Portfolio Exists,including an Asset a with a Total 10.1% 10.1 \% 10.1%

An Arbitrage Portfolio Exists,including an Asset a with a Total $10.1 \%$