Consider the Following Two Factor APT Model E(R) = $\lambda$ ₀

question 49

Multiple Choice

Consider the following two factor APT model E(R) = $\lambda$ ₀ + $\lambda$ ₁b₁ + $\lambda$ ₂b₂

• A)\(\lambda\)₁ is the expected return on the asset with zero systematic risk.
• B)\(\lambda\)₁ is the expected return on asset 1.
• C)\(\lambda\)₁ is the pricing relationship between the risk premium and the asset.
• D)\(\lambda\)₁ is the risk premium.
• E)\(\lambda\)₁ is the factor loading.

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Definitions:

Delta

In finance, delta represents the rate of change of an option's price with respect to the change in the underlying asset's price.

Gamma

A measure of the rate of change in an option's delta for a one-unit change in the price of the underlying asset, indicating the convexity of an option's value relative to the underlying.

Theta

A term from options trading that describes the rate of change in an option's price with respect to the passage of time.

Elasticity

A measure of how much the demand or supply of a product changes in response to changes in price or other economic factors.