Consider the One-Factor APT

question 56

Multiple Choice

Consider the one-factor APT. The variance of returns on the factor portfolio is 9. The beta of a well-diversified portfolio on the factor is 1.25. The variance of returns on the well-diversified portfolio is approximately

• A) 3.6.
• B) 6.0.
• C) 7.3.
• D) 14.1.

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Definitions:

Availability Delay

The lag between the deposit of a check and the moment the funds become available in the account.

Securities Trade

The buying and selling of financial instruments such as stocks, bonds, and mutual funds.

Fixed Cost

Costs that do not vary with the volume of output or sales, such as rent, salaries, and insurance premiums.

Target Cash Balance

The optimal amount of cash that a company aims to maintain to handle its operational and transactional needs.