【正文】 has a beta of on the factor. The expected returns on portfolios A and B are 11% and 17%, respectively. Assume that the riskfree rate is 6% and that arbitrage opportunities exist. Suppose you invested $100,000 in the riskfree asset, $100,000 in portfolio B, and sold short $200,000 of portfolio A. Your expected profit from this strategy would be ______________.$1,000D.Consider the onefactor APT. Assume that two portfolios, A and B, are well diversified. The betas of portfolios A and B are and , respectively. The expected returns on portfolios A and B are 19% and 24%, respectively. Assuming no arbitrage opportunities exist, the riskfree rate of return must be ____________.%D.Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 3%, respectively. The riskfree rate of return is 10%. Stock A has an expected return of 19% and a beta on factor 1 of . Stock A has a beta on factor 2 of ________.D.Consider the single factor APT. Portfolios A and B have expected returns of 14% and 18%, respectively. The riskfree rate of return is 7%. Portfolio A has a beta of . If arbitrage opportunities are ruled out, portfolio B must have a beta of __________.D.There are three stocks, A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the uping year。25.%C.26.%C.27.%C.28. B and CB. A and BD.29.4%C.30.4%C.31.the law of prices is not violatedC.32.the meanvariance efficiency frontierC.33.minimizes the importance of diversificationC.34.identification of anticipated changes in production, inflation, and term structure as key factors in explaining the riskreturn relationshipC.35.only systematic risk is related to expected returns.C.36.interest rate fluctuations.C.37.that the model does not require a specific benchmark market portfolio.C.38.sell A short and buy B.C.39. APT depends on a no arbitrage condition.B.CAPM depends on riskreturn dominance。 APT depends on a no arbitrage condition and assumes many small changes are required to bring the market back to equilibrium.pure arbitrage.B.covered interest arbitrage.one.B.None of these is correct.one that is diversified over a large enough number of securities that the nonsystematic variance is essentially zero.B.a portfolio that is equally weighted and contains securities from at least three different industry sectors.that is equal to the true market portfolio.B.that is unobservable.I and III are correct.B.Only I is correct.%B.%buying low and selling high.B.hedging your portfolio through the use of options.I and IVB.II, III, and IVfirmspecific risk.B.a random amount of return attributable to firm events.%B.%%B.%%B.%%B.%The SML has a downward slope.B.The SML is not relevant for the APT.The SML has a downward slope.B.The SML has a downward slope, the SML for the APT shows expected return in relation to portfolio standard deviation, and the SML for the APT has an intercept equal to the expected return on the market portfolio are all false.A.proportional to its standard deviation.E.A.%E.t rely on the market portfolio that contains all assets.II and IIID.In a factor model, the return on a stock in a particular period will be related tostandard deviation of returns.D.Which of the following factors did Chen, Roll and Ross not include in their multifactor model?Change in unanticipated inflationD.Which of the following factors did Chen, Roll and Ross include in their multifactor model?Change in unanticipated inflationD.Which of the following factors were used by Fama and French in their multifactor model?Excess return of high booktomarket stocks over low booktomarket stocks.D.Consider the singlefactor APT. Stocks A and B have expected returns of 12% and 14%, respectively. The riskfree rate of return is 5%. Stock B has a beta of . If arbitrage opportunities are ruled out, stock A has a beta of __________.D.Consider the onefactor APT. The standard deviation of returns on a welldiversified portfolio is 19%. The standard deviation on the factor portfolio is 12%. The beta of the welldiversified portfolio is approximately __________.D.Black argues that past risk premiums on firmcharacteristic variables, such as those described by Fama and French, are problematic because ________.they can be explained by security characteristic linesD.Multifactor models seek to improve the performance of the singleindex model byallowing for multiple economic factors to have differential effects.D.Multifactor models such as the one constructed by Chen, Roll, and Ross, can better describe assets39。using variables that are easier to forecast ex ante.C.67.%C.68.C.69.%C.70. AB. AD. the riskless assetA。B。No arbitrage opportunity exists.%B.%%B.%B.67Discuss the advantages of arbitrage pricing theory (APT) over the capital asset pricing model (CAPM) relative to diversified portfolios.Discuss arbitrage opportunities in the context of violations of the law of one price.Security A has a beta of and an expected return of 12%. Security B has a beta of and an expected return of 11%. The riskfree rate is 6%. Explain the arbitrage opportunity that exists。Chapter 10 Arbitrage Pricing Theory and Multifactor Models of Risk and Return Answer Key___________ a relationship between expected return and risk.Both CAPM and APT stipulateD.s: RememberDifficulty: BasicTopic: APT and CAPM%B.%% = (%) + .86x + 5%。3.factor sensitivitiesC.AACSB: AnalyticBloom39。A.factor betasE.5.firmspecific riskC.AACSB: AnalyticBloom39。A.Neither the CAPM nor the multifactor APTE.7.small negativeC.16