- CFA Exams
- CFA Exam: Level II 2021
- Study Session 16. Portfolio Management (1)
- Reading 44. Using Multifactor Models
- Subject 1. Arbitrage pricing theory

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**CFA Practice Question**

Suppose we have one well-diversified portfolio that is sensitive to a single factor. The expected return, risk-free rate, and factor sensitivity are 0.08, 0.02, and 2, respectively. What is the factor risk premium?

B. 0.03

C. 0.06

A. 0.02

B. 0.03

C. 0.06

Correct Answer: B

0.08 = 0.02 + 2 x λ

_{1}λ

_{1}= 0.03###
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