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

Question

Quizplus · Accepted Answer

Premx = 11eaaae8_8b64_b9cd_a4b8_5574b8055d11_TB6474_11 = 6 Premy = 11eaaae8_8b64_b9ce_a4b8_27d2b5b836de_TB6474_11 = 6
Thus, there are no arbitrage opportunities, and X and Y are in equilibrium.

Assume That Both X and Y Are Well-Diversified Portfolios and the Risk-Free