In the APT Model, What Is the Nonsystematic Standard Deviation

question 19

Multiple Choice

In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of σ(e_i) equal to 20% and 20 securities?

• A) 12.5%
• B) 625%
• C) 4.47%
• D) 3.54%
• E) 14.59%

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Definitions:

Sustainable Growth Rate

The maximum rate at which a company can grow its revenues and profits without needing to increase financial leverage.

Debt-Equity Ratio

An indicator of a firm's use of financial debt, found by dividing the total amount of liabilities by the equity owned by stockholders.

Retention Ratio

The proportion of net income that is retained in the company rather than paid out to shareholders as dividends.

Growth Rate

A measure of the increase in size, number, value, or strength of a business or other entity's key metric over a specified period of time.