An analyst develops her APT asset pricing line and finds that Securities A and B both have the same factor sensitivity. A lies above the line; B lies below the line. She should
A) buy B and sell an equal amount of A.
B) sell B and hold A.
C) buy A and sell an equal amount of B.
D) buy A and hold B.

Question

Quizplus · Accepted Answer

Based on the APT asset pricing line, the analyst should buy A and sell an equal amount of B, as A is expected to outperform B.

An Analyst Develops Her APT Asset Pricing Line and Finds