Consider a one-factor APT model. The standard deviation of returns on a well-diversified portfolio is 30%. The standard deviation on the factor portfolio is 20%. What is the beta of the well-diversified portfolio?
A) 0.9
B) 1.5
C) 1.75
D) 2.0

Question

Consider a one-factor APT model.  The standard deviation of returns on a well-diversified portfolio is 30%.  The standard deviation on the factor portfolio is 20%.  What is the beta of the well-diversified portfolio?
A) 0.9
B) 1.5
C) 1.75
D) 2.0

Quizplus · Accepted Answer

In the one-factor APT model, the beta of a portfolio relative to the factor is calculated as the ratio of the portfolio's standard deviation to the factor's standard deviation. Therefore, the beta of the well-diversified portfolio is 30% / 20% = 1.5.

Consider a One-Factor APT Model