In a Factor Model Any Portion of a Security's Return

question 25

Multiple Choice

In a factor model any portion of a security's return unexplained by the model is assumed to be _______ with unique elements of returns on other securities.

• A) directly correlated
• B) indirectly correlated
• C) uncorrelated
• D) somewhat correlated

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Definitions:

Traditional IRA

A type of retirement account that allows individuals to make pre-tax contributions, with the investments growing tax-deferred until withdrawals begin.

Wage Insurance

A form of financial protection that provides workers with a portion of their earnings difference if they lose their job and find a new one at a lower wage.

Moral Hazard

A situation in which one party is more likely to take risks because they do not bear the full consequences of their actions, often due to asymmetric information or where one party is protected in some way from the risks they take.

Traditional Retirement Plan

A retirement savings plan that offers tax advantages to the saver, often involving tax-deferred growth until withdrawals.