In a portfolio of risky assets, the response to a factor, Fi , can be determined by:
A)summing the weighted bi s and multiplying by the factor Fi.
B)summing the Fis.
C)adding the average weighted expected returns.
D)summing the weighted random errors.
E)All of the above.

Question

Quizplus · Accepted Answer

The response to a factor in a portfolio of risky assets can be determined by summing the weighted bi s and multiplying by the factor Fi. This is because the bi s represent the sensitivity of each asset to the factor, and when multiplied by the factor and summed, they give the overall response of the portfolio to the factor.

In a Portfolio of Risky Assets, the Response to a Factor