In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of σ(e_i) equal to 25% and 50 securities? A) 12.5% B) 625% C) 0.5% D) 3.54% E) 14.59%

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Quizplus · Accepted Answer

The nonsystematic standard deviation of an equally-weighted portfolio is calculated by dividing the average value of σ(e_i) by the square root of the number of securities. Given an average value of 25% and 50 securities, the calculation is 25% / sqrt(50) = 25% / 7.071 = 3.54%.

In the APT Model, What Is the Nonsystematic Standard Deviation