How to create a portfolio that creates arbitrage

Assignment Help Financial Management

Reference no: EM132021875

How to create a portfolio that creates arbitrage without using the ATP...Please help.

Q. "Say there are two assets denoted by A and B. Let:

E(rA) = 10% E(rB) = 14%

sA = 8% sB = 18%

Further let the correlation coefficient between the returns of A and B be equal to -1 (?A,B = -1). Lastly, let the risk-free rate be 3% (rf = 3%).

Create an arbitrage (earn a riskless profit which doesn't require use of your own money). (Can NOT use the ATP, ONLY Markowitz to solve)"

Reference no: EM132021875

Questions Cloud

What are your shares in this firm worth today on a per share : The company paid a $2.80 annual dividend last year. The company has announced plans to lower the dividend by 25 percent each year.

Socioeconomic status effects childhood obesity : If I am creating my own experiment and my hypothesis states "socioeconomic status effects childhood obesity", What would be my independent and dependent?

Discuss how math is all around you : Discuss how math is all around you in your everyday life - in business as well as in your personal life.

What is uncertainty in quantitative research : What is uncertainty in Quantitative research? How can uncertainty be minimized in Quantitative research?

How to create a portfolio that creates arbitrage : Further let the correlation coefficient between the returns of A and B be equal to -1 (?A,B = -1). Lastly, let the risk-free rate be 3% (rf = 3%).

Suspect of having a linear relationship : Two variables on the individuals in that population whose values you suspect of having a linear relationship in that population.

What would the annual yield to maturity be on : Sweet Fruit, Inc. has a $1.000 par value bond that is currently selling for $1, 280 II has an annual coupon rate of 9 90 percent, paid semiannually.

Set of defective systems in the next computer : How do I find the possible outcomes for the set of defective systems in the next computer.

Find the discount yield and bond equivalent yield : Calculate the discount yield, bond equivalent yield, and EAR on the T-bill if it matures in 280 days.

User Account

All Pages