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Basic Question 4 of 11
Suppose we have two well-diversified portfolios (PA and PB) that are sensitive to the same single factor. The risk-free rate is 2%.
A | 0.08 | 2
B | 0.12 | 3
Portfolio | Expected return | Factor sensitivity
A | 0.08 | 2
B | 0.12 | 3
Are there any arbitrage opportunities?
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I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models;
define arbitrage opportunity and determine whether an arbitrage opportunity exists;
calculate the expected return on an asset given an asset's factor sensitivities and the factor risk premiums;
CFA® 2025 Level II Curriculum, Volume 5, Module 40.