Question

A stock has an expected retum of 14% based on its
performance. Under the APT, given its visk exposure, the fair
expected return is 18%. What would an arbitrageur trade in this
situation?

a-Buy the stock as price is too low, Buying increases price,
reducing return

b-Buy the stock as price is too low, Buying increases price,
increasing return.

c-De nothing - without risk free rate can not tell.

d-Short the stock as the price is too high. Selling reduces price,
increasing return​

Answer 1

Explanation:

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