## Answers

Page 1 solution:- * Given data- 15 2) The Risk-free sate is 4% 1 =) The three securities A, B and characterized by following security R E(R3) 6(e:) A 0.8 15 % 24% | B lol 1815 iclate 2118 I a) If om = 20% - Total Variance of security- (standaód deviation of security) - (B) (standard deviation of moš ket) + (Standard deviation of error terme -> Total Variance of A = (0-8)(2019 +(24)*= 832 - Total variance of B = (1.1)*(20)) + (15) = 709 Total variance of c= ((1-4) (2017) + (18) = 1108

page-2 b) If there are infinite number of Assets with Retuon characteristics identical to those of A, B &c. => The Post folio consists of A Securities will I have mean of 15 & variance equal to ((0.83€ x (2013) - 256 > The Portfolio consists of B' Securities I will have mean of 18 & variance equal I to ((1.1) x (20)") = 484 > The Portfolio consists of y Securities will have mean of 21 & variance equal ..to (C1kg? x (20)) = 784 security ECRi) variance A l 15% | 256 B 18 484 784 Please, give Positive vote.

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Is there an arbitrage opportunity in this market?

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