Imposing the no-arbitrage condition on a single-factor security market implies w
ID: 2746000 • Letter: I
Question
Imposing the no-arbitrage condition on a single-factor security market implies which of the following statements? The expected return-beta relationship is maintained for all but a small number of well-diversified portfolios. The expected return-beta relationship is maintained for all well-diversified portfolios. The expected return-beta relationship is maintained for all but a small number of individual securities. The expected return-beta relationship is maintained for all individual securities. I and III I and IV II and III II and IV Only I is correct.Explanation / Answer
Answer II and III is correct
The expected return-beta relationship must hold for all well-diversified portfolios and for all but a few individual securities; otherwise arbitrage opportunities will be available