Asked by
Mansueto Ching
on Oct 20, 2024
Verified
Consider the one-factor APT. The variance of the return on the factor portfolio is .08. The beta of a well-diversified portfolio on the factor is 1.2. The variance of the return on the well-diversified portfolio is approximately ________.
A) .1152
B) .1270
C) .1521
D) .1342
Factor Portfolio
An investment strategy focusing on specific drivers of returns, such as size, value, and momentum, to achieve targeted outcomes.
Well-diversified Portfolio
A portfolio that includes a wide variety of investments across different asset classes in order to reduce risk.
Variance
A statistical measure of the dispersion of returns for a given security or market index, often used to gauge volatility.
- Acquire knowledge on the workings of the Arbitrage Pricing Theory (APT) and contrast its methodologies with those of the Capital Asset Pricing Model (CAPM).
Verified Answer
SP
Learning Objectives
- Acquire knowledge on the workings of the Arbitrage Pricing Theory (APT) and contrast its methodologies with those of the Capital Asset Pricing Model (CAPM).