CAS Exam 9 Spring 2017, Question 4
Study guide: Exam 9
Given the following:
| Asset | Expected Return | Standard Deviation |
|---|---|---|
| A | 4% | 25% |
| B | 7% | 35% |
- The assets are perfectly negatively correlated.
- The risk-free rate is 2%.
Part a (0.5 points)
Describe the arbitrage opportunity that exists without using any calculations.
Part b (1.5 points)
Calculate the expected return of this arbitrage opportunity.
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution