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Security expected returns and betas

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Security expected returns and betas

Security    E(R)    Beta
1    10%    1.00
2    12%    1.20
3    13%    1.10

Suppose there are three well-diversified portfolios, as shown above. An arbitrage opportunity is implied in these numbers. Show mathematically how to take advantage of it.

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Finance Basics: Security expected returns and betas

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