In the APT Model, What Is the Nonsystematic Standard Deviation

question 19

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 20 securities?

• A) 12.5%
• B) 625%
• C) 4.47%
• D) 3.54%
• E) 14.59%

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Definitions:

Economic Efficiency

A state where resources are allocated in a way that maximizes the production of goods and services without wasting any resources.

External Benefit

A benefit that results from an activity but affects uninvolved third parties who did not choose to incur that effect, often leading to market inefficiencies.

Inefficient Equilibrium

A state in a market where resources are not allocated optimally, leading to wastage or loss of potential gain.