In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of $\sigma$(e_i) equal to 18% and 250 securities? A)1.14% B)625% C)0.5% D)3.54%

Question

Quizplus · Accepted Answer

The nonsystematic standard deviation of an equally-weighted portfolio is calculated by dividing the average value of the nonsystematic variance by the square root of the number of securities. Given an average value of 18% (or 0.18 when converted to decimal form) and 250 securities, the calculation is $ \frac{0.18}{\sqrt{250}} $, which equals approximately 0.0114 or 1.14% when converted back to percentage form.

In the APT Model, What Is the Nonsystematic Standard Deviation σ\sigmaσ

In the APT Model, What Is the Nonsystematic Standard Deviation $\sigma$