Consider the One-Factor APT

question 14

Multiple Choice

Consider the one-factor APT. The variance of returns on the factor portfolio is 11. The beta of a well-diversified portfolio on the factor is 1.45. The variance of returns on the well-diversified portfolio is approximately

• A) 23.1.
• B) 6.0.
• C) 7.3.
• D) 14.1.

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Definitions:

Recognizance

An obligation in which a party acknowledges in court that he or she will perform some specified act and/or pay a price on failure to do so.

Formal Contract

A legally binding agreement that requires a specific form, such as being in writing, to be valid.

Bond

A fixed income investment in which an investor loans money to an entity that borrows the funds for a defined period.

Restatement (Second)

A collection of model legal rules and principles meant to clarify the common law in the United States, not binding but influential.