Consider the One-Factor APT

question 56

Multiple Choice

Consider the one-factor APT. The variance of returns on the factor portfolio is 9. The beta of a well-diversified portfolio on the factor is 1.25. The variance of returns on the well-diversified portfolio is approximately

• A) 3.6.
• B) 6.0.
• C) 7.3.
• D) 14.1.

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Definitions:

Liquidation

The process of bringing a business to an end and distributing its assets to claimants, often preceded by insolvency.

Noncash Assets

Assets that cannot be easily converted to cash but hold value, such as real estate, equipment, and intellectual property.

Deficit

The amount by which expenses exceed income or costs exceed revenues.