Consider the one-factor APT model where the variance of a return on the factor portfolio is .06 and the beta of a well-diversified portfolio on the factor is 1.3 The variance of return on the well-diversified portfolio is approximately ______
A) .0660
B) .0331
C) .1014
D) .0777

Question

Consider the one-factor APT model where the variance of a return on the factor portfolio is .06 and the beta of a well-diversified portfolio on the factor is 1.3  The variance of return on the  well-diversified portfolio is approximately ______
A) .0660
B) .0331
C) .1014
D) .0777

Quizplus · Accepted Answer

The variance of return on the well-diversified portfolio can be calculated using the formula: Variance = Beta^2 * Variance of the factor. Here, Beta = 1.3 and Variance of the factor = .06. So, Variance = 1.3^2 * .06 = 1.69 * .06 = .1014.

Consider the One-Factor APT Model Where the Variance of a Return