Consider the one-factor APT.The variance of returns on the factor portfolio is 9%.The beta of a well-diversified portfolio on the factor is 1.25.The variance of returns on the well-diversified portfolio is approximately __________.
A)3.6%
B)6.0%
C)7.3%
D)14.1%
E)none of the above

Question

Quizplus · Accepted Answer

According to the one-factor APT, the variance of returns on a well-diversified portfolio can be calculated as follows:
Variance of returns on the well-diversified portfolio = (beta of the portfolio)^2 x (variance of returns on the factor portfolio)
Substituting the given values, we get:
Variance of returns on the well-diversified portfolio = (1.25)^2 x 9% = 14.1%
Therefore, the answer is (D) 14.1%.

Consider the One-Factor APT