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

Question

Quizplus · Accepted Answer

The correct method to determine the response to a factor in a portfolio of risky assets is by summing the weighted betas and multiplying by the factor. This is because beta measures the sensitivity of an asset's return to changes in the factor, and weighting them by their proportion in the portfolio gives an overall measure of the portfolio's response to the factor. The other options listed are not relevant for determining the response to a factor in a portfolio.

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

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