Assume that both X and Y are well-diversified portfolios and the risk-free rate is 8%. Portfolio X has an expected return of 14% and a beta of 1. Portfolio Y has an expected return of 9.5% and a beta of .25. In this situation, you would conclude that portfolios X and Y ________.
A) are in equilibrium
B) offer an arbitrage opportunity
C) are both underpriced
D) are both fairly priced
Correct Answer:
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