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Consider two well-diversified portfolios, A and C, rf = 4%, E(rA) = 10%, E(rC) = 6%,...

Consider two well-diversified portfolios, A and C,

rf = 4%, E(rA) = 10%, E(rC) = 6%, bA = 1, bC  = ½

If the maximum amount you can borrow is $1,000,000, what is your arbitrage strategy and profit?

A.

Long 1 A , short 0.5 C , short 0.5 rf, profit=$5,000
B.

Long  1C , short 0.5 A, short 0.5 rf, profit=$5,000
C.

Long 0.5 C, Long 0.5 rf, short 1 A,  profit=$10,000
D.

Long 0.5 A, Long 0.5 rf, short 1 C,  profit=$10,000
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