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.

Question

Quizplus · Accepted Answer

The variance of the well-diversified portfolio is calculated as the square of the beta times the variance of the factor portfolio: (1.25^2) * 9 = 14.0625, which is approximately 14.1.

Consider the One-Factor APT