In the APT Model, What Is the Nonsystematic Standard Deviation

question 59

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 25% and 50 securities?

• A) 12.5%
• B) 625%
• C) 0.5%
• D) 3.54%
• E) 14.59%

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Definitions:

Simple Rate of Return

A financial metric that measures the efficiency of an investment as the annual income divided by the initial investment cost.

Time Value of Money

The principle that a sum of money is worth more now than the same sum in the future due to its potential earning capacity.

Payback Method

A method of investment appraisal that calculates the time required for the cash inflows from a project to repay its initial investment cost.

Capital Budgeting

The process of planning and managing a company’s long-term investments in major projects or assets, evaluating profitability and risks.