Multifactor Models Seek to Improve the Performance of the Single-Index

question 39

Multiple Choice

Multifactor models seek to improve the performance of the single-index model by

• A) modeling the systematic component of firm returns in greater detail.
• B) incorporating firm-specific components into the pricing model.
• C) allowing for multiple economic factors to have differential effects
• D) all of these are true.
• E) none of these are true.

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Definitions:

Equity Method

An accounting technique used to record investments in which the investor has significant influence over the investee but does not control it outright, usually indicated by owning 20% to 50% of the investee's equity.

Controlling Interest

Ownership of a portion of a company that is large enough to control or influence decision-making and operations.

Significant Influence

The ability of an investor to affect decisions of the investee in which it holds a significant but not controlling interest, typically through ownership of 20% to 50% of voting shares.

Investee

The entity in which an investment is made, usually implying that the investor has significant influence but not full control over it.