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Which of the following must be done to test the multifactor CAPM or the APT?
I.specify the risk factors
II.identify portfolios that hedge the risk factors
III.test the explanatory power of hedge portfolios
IV.test the risk premiums of hedge portfolios
Risk-free Rate
A theoretical return on an investment with zero risk, typically represented by government bonds.
Portfolio Beta
A measurement of the volatility of a portfolio compared to the market as a whole.
Risk-free Asset
An investment with a guaranteed return and no risk of loss, often represented by government bonds.
Beta
An evaluation of the consistent risk or volatility of a security or a portfolio relative to the overall market.
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