Consider a One-Factor APT Model Where the Standard Deviation of the Return

question 31

Multiple Choice

Consider a one-factor APT model where the standard deviation of the return on a well-diversified portfolio is 20%. The standard deviation on the factor portfolio is 16%. The beta of the well-diversified portfolio is approximately

• A) .75
• B) 1.0
• C) 1.35
• D) 1.25

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Definitions:

Tax Rate Schedules

Detailed charts provided by the IRS that determine the amount of tax an individual or entity owes based on their income level.

Progressive Tax Structure

A taxation system where tax rates increase as the taxable amount increases, resulting in higher income earners paying a larger percentage of their income in taxes.

Marginal Tax Rates

The rate at which an additional dollar of income would be taxed, which varies based on income levels and is a fundamental component of progressive tax systems.

Average Tax Rates

The ratio of the total amount of taxes paid to the total tax base (taxable income or spending), indicating the percentage of income that goes to taxes.