Consider the One-Factor APT

question 32

Multiple Choice

Consider the one-factor APT. The standard deviation of returns on a well-diversified portfolio is 14%. The standard deviation on the factor portfolio is 10%. The beta of the well-diversified portfolio is approximately

• A) 0.80.
• B) 1.40.
• C) 1.65.
• D) 1.82.

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Definitions:

Efficiency Loss

Reductions in combined consumer and producer surplus caused by an underallocation or overallocation of resources to the production of a good or service. Also called deadweight loss.

Deadweight Loss

A loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable.

Actual Production

The quantity of goods or services produced by a firm, industry, or economy within a specific period, factual and not estimated.

Consumer Surplus

The variance between what consumers are ready and capable of spending on a product or service and the actual sum they end up paying.