Exam 11: Factor Models

For a 10-factor model, the analyst must develop 10

Which of the following statements is NOT true about one-factor models and diversification?

The one-factor return-generating model assumes the correlation between the random-error term and the factor is

In a factor model, the variable "B" measures the

_____ risk is that part of security's total risk that is related to moves in various common factors.

You have a two-factor model to forecast the return for Security A: 4% + l.5(GDP) - 2(CPI). You forecast GDP at 4% and CPI at 3% with variances of 6% and 5% respectively. The covariance (GDP, CPI) is .8 and the variance of the random error is 9%. The variance for Security A would be

To calculate the zero-factor from a multiple-factor model developed portfolio, the resulting zero-factor

________ is a measure of the responsiveness of a security's returns to a particular common factor.

In the factor-analytic approach to estimating factor models, factor analysis will identify factors but unfortunately they will be

In the world of factor models the market model is an example where the factor is the

Random diversification will tend to decrease

For a one factor model, the slope for Security X is 4, and the slope for Security Y is 5. The factor has a standard deviation of 3%. The covariance between Securities X and Y is

The savings and loan industry would probably have a high sensitivity to a factor such as