Consider the One-Factor APT

question 23

Multiple Choice

Consider the one-factor APT. The standard deviation of returns on a well-diversified portfolio is 19%. The standard deviation on the factor portfolio is 12%. The beta of the well-diversified portfolio is approximately

• A) 1.58.
• B) 1.13.
• C) 1.25.
• D) 0.76.

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Definitions:

Common Stock

A type of equity security that represents ownership in a corporation, entitling the holder to a share of the company's profits through dividends and/or capital appreciation.

Net Profit Margin

A profitability ratio calculated by dividing net income by revenue, indicating the percentage of each dollar of revenue that results in net profit.

Total Assets

The sum of all current and long-term assets held by a company, indicating the total resources that a company has at its disposal.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, representing the owners' claim on the business.