In a portfolio of risky assets,the response to a factor,F_i,can be determined by: A) summing the weighted β_i s and multiplying by the factor F_i. B) summing the F_i s. C) adding the average weighted expected returns. D) summing the weighted random errors. E) All of

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Quizplus · Accepted Answer

The response to a factor can be determined by summing the weighted betas and multiplying by the factor. This is known as the factor exposure or sensitivity of the portfolio to the factor. Option B is incorrect because simply summing the F_is does not take into account the portfolio's sensitivity to the factor. Option C is incorrect because adding the average weighted expected returns does not provide information about the portfolio's response to the factor. Option D is incorrect because the weighted random errors are not relevant for determining the portfolio's response to a factor. Option E is incorrect because not all the options are correct.

In a Portfolio of Risky Assets,the Response to a Factor,Fi,can

In a Portfolio of Risky Assets,the Response to a Factor,F_i,can