Portfolio A has a beta of 1.3 and an expected return of 21%. Portfolio B has a beta of .7 and an expected return of 17%. The risk-free rate of return is 9%. If a hedge fund manager wants to take advantage of an arbitrage opportunity, she should take a short position in portfolio ________ and a long position in portfolio ________.
A) A; A
B) A; B
C) B; A
D) B; B
Correct Answer:
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