Consider a one-factor APT model where the standard deviation of the return on a well-diversified portfolio is 20%. The standard deviation on the factor portfolio is 16%. The beta of the well-diversified portfolio is approximately
A) .75
B) 1.0
C) 1.35
D) 1.25

Question

Consider a one-factor APT model where the standard deviation of the return on a well-diversified portfolio is 20%.  The standard deviation on the factor portfolio is 16%.  The beta of the well-diversified portfolio is approximately
A) .75
B) 1.0
C) 1.35
D) 1.25

Quizplus · Accepted Answer

The beta of a well-diversified portfolio is typically around 1.0, meaning that it has the same level of systematic risk as the overall market. The beta for the portfolio given is slightly higher than 1.0, indicating that the portfolio may have slightly more systematic risk than the market, but D is still the best choice as it is the closest to 1.0.

Consider a One-Factor APT Model Where the Standard Deviation of the Return