Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text: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 upcoming year (each equally likely to occur); economic growth may be strong, moderate, or weak. The
returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:
Stock
A
B
с
Strong Growth
39%
30%
6%
State of Nature
Moderate Growth
17%
5%
14%
Weak Growth
-5%
0%
22%
If you wanted to take advantage of a risk-free arbitrage opportunity, you should take a short position in
in an equally weighted portfolio of
O a. C, A and B O b. B, A and C OCA and B, C O d. A, B and C
and a long position
F
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