- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 40. Using Multifactor Models
- Subject 1. Arbitrage Pricing Theory
CFA Practice Question
Which is true regarding factor portfolios?
II. Since there are many assets, such portfolios can be constructed for each factor.
III. If a portfolio manager wants to bet on a source of risk, he or she may use factor portfolios.
I. A factor portfolio is a well-diversified portfolio with a beta coefficient equal to one for a specific factor and zero for all other factors.
II. Since there are many assets, such portfolios can be constructed for each factor.
III. If a portfolio manager wants to bet on a source of risk, he or she may use factor portfolios.
Correct Answer: I, II and III
User Contributed Comments 4
| User | Comment |
|---|---|
| wink26 | Wha? A portfolio that has exposure to a one factor is diversified? I don't agree with I. |
| jay1 | yes you can have well-diversified portfolios that are sensitive to one factor. Check the example 11 of the reading. Being well-diversified means there is no unsystematic risks. That's it. |
| dblueroom | The CAMP is an example of one factor portfolio. Only market risk is considered and priced, as compared to multifactor APT, asset return has exposure to multiple factors. |
| StJohnDale | I think this question belongs in the next section? |