Consider the following data for a one-factor economy. All portfolios are well diversified.
|
portfolio
|
E(r)
|
Beta
|
|
A
|
12%
|
1.2
|
|
F
|
6%
|
0.0
|
Suppose that another portfolio, portfolio E, is well diversified with a beta of .6 and expected return of 8%. Would an arbitrage opportunity exist? If so, what would be the arbitrage strategy?