Exam 6: Factor Models and the Arbitrage Pricing Theory

If equity A's beta on the inflation factor is 1.2,equity B's is 2.6 and equity C's is 3,a portfolio that has weights of 0.5 on equity A,0.3 on equity B and 0.2 on equity C has a factor beta of _____ on this factor.

Which of the following is true of the comparison between CAPM and APT models?

Which of the following is an assumption of the arbitrage pricing theory?

Explain the multifactor model equation.

Explain the factor analysis to generate factor portfolios.

The unsystematic risk is:

Based on the market model,explain the two components of total riskof a security or a portfolio.

Which of the following is true of the market model regression?

A financial analyst is estimating factor beta for a portfolio.He uses a regression of the historical returns of the security against the historical factor realizations.Which of the following is the factor beta using this regression analysis?

Which of the following is true of pure factor portfolios?

Which of the following is true of the multi-factor model based on the following equation? var(r₁)= $\beta$ _i1²var(F₁)+ $\beta$ _i1²var(F₂)+ ...+ $\beta$ _ik²var(F_K)+ var( $\varepsilon$ ₁)

Explain the construction of tracking portfolio for factor betas.

The statistic used in the regression equation,R-squared:

The _____ of a security is the portion of the security?s return variance that is explained by market movements.

Factor risk is not diversifiable in the context of a portfolio because:

Which of the following is true of firm characteristics to estimate factors?

Which of the following is a non-diversifiable risk?

Which of the following is an empirical implication of the APT?

Factor analysis: