In the APT Model, What Is the Nonsystematic Standard Deviation $\sigma$

question 17

Multiple Choice

In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of $\sigma$ (e_i) equal to 25% and 50 securities?

• A)12.5%
• B)625%
• C)0.5%
• D)3.54%

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Definitions:

Fair Value

The cost incurred or received during the sale of an asset or transfer of a liability in a systematic transaction among market actors on the valuation date.

Undervalued

An economic condition where the market price of an asset falls short of its intrinsic or real value as evaluated by investors.

Overvalued

A descriptor for an asset or stock whose price is believed to be higher than its intrinsic value.

Trademark

A distinguishable symbol, pattern, or phrase that serves to differentiate the goods or services of one origin from those of another.