Which of the Following Is True of the Multi-Factor Model $\beta$

question 11

Multiple Choice

Which of the following is true of the multi-factor model based on the following equation? var(r₁) = $\beta$ _i1²var(F₁) + $\beta$ _i1²var(F₂) + ...+ $\beta$ _ik²var(F_K) + var( $\varepsilon$ ₁)

• A)The sum of the first K term is the total risk of the security.
• B)The last term represents the firm-specific risk.
• C)The first term represents the firm-specific risk.
• D)The last K term is the total risk of the security.

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