M Represents in the Factor Model, X_i = A_i1 F₁

question 5

Multiple Choice

m represents in the factor model, X_i = A_i1 F₁ + A_i2 F₂ + A_i3 F₃ + ... + A_im F_m + V_iU_i.

• A) the number of common factors
• B) the mth standardized variable
• C) the common factors
• D) the number of variables

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Definitions:

Risk-free Rate

The return on investment of a theoretically risk-less security, often represented by the yield on government bonds.

Risk Premium

The additional return expected by an investor for taking on a higher level of risk, compared to a risk-free investment.

Risky Asset

An investment that holds a significant chance of losing all or part of its value.

Risk-free Asset

An investment option that ensures a definite return and carries no risk of losing money.