Assume the single-factor APT model applies and a portfolio exists such that half of the funds are invested in risky Security Q and the rest in a risk-free asset.Security Q has a beta of 1.8.The portfolio has a factor beta of:
A)0.
B).8.
C).9.
D)1.
E)1.8.

Question

Quizplus · Accepted Answer

The portfolio's factor beta is calculated as the weighted average of the betas of its components. Since half of the portfolio is invested in Security Q with a beta of 1.8 and the other half in a risk-free asset with a beta of 0, the portfolio's beta is (0.5 * 1.8) + (0.5 * 0) = 0.9.

Assume the Single-Factor APT Model Applies and a Portfolio Exists