In the APT Model, What Is the Nonsystematic Standard Deviation

question 40

Multiple Choice

In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of σ(e_i) equal to 20% and 40 securities?

• A) 12.5%
• B) 625%
• C) 0.5%
• D) 3.54%
• E) 3.16%

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Definitions:

Financial Institutions

Financial Institutions are organizations such as banks, credit unions, and insurance companies that provide a wide range of financial services including deposits, loans, investments, and currency exchange.

Federal Funds Rate

The borrowing cost at which financial institutions lend and borrow federal funds (reserves at Federal Reserve Banks) from each other overnight.

Interest Rate

Interest rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Fractional-reserve Banking

A banking system where banks hold only a fraction of their deposits in reserve, lending the rest to generate profits.