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:

Outstanding Stock

Refers to the total shares of a company that are currently held by all its shareholders, including share blocks held by institutional investors and restricted shares held by insiders.

Investor

An individual or organization that allocates capital with the expectation of receiving financial returns.

Investee

A business entity in which another entity holds an investment, indicating a degree of influence or control.

Debt Securities

Financial instruments representing money borrowed that must be repaid, with terms that include the amount, interest rate, and maturity date.