You Have a 3 Factor Model to Explain Returns

question 35

Essay

You have a 3 factor model to explain returns. Explain what a factor represents in the context of the APT?
Each factor is multiplied by a beta. What do these represent and how do they relate to the actual return?

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Definitions:

Need for Achievement

A psychological drive that motivates individuals to accomplish goals and excel in their endeavors.

Accomplishment

Something that has been achieved successfully.

Self-Interest

Acting in a way that is beneficial to oneself, often without regard for others.

Motivation

Concept with two widely used meanings: (1) an internal state that leads to effort expended toward objectives and (2) an activity performed by one person to get another to accomplish work.