- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 41. Using Multifactor Models
- Subject 1. Arbitrage Pricing Theory

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**CFA Practice Question**

Suppose there are three well-diversified portfolios (P

A | 0.08

B | 0.12

C | 0.14

_{A}, P_{B}and P_{C}) that are sensitive to the same single factor. The risk-free rate is 2% and the factor risk premium is 0.04.Portfolio | Expected return

A | 0.08

B | 0.12

C | 0.14

Which portfolio is most sensitive to the factor?

A. Portfolio A

B. Portfolio B

C. Portfolio C

**Explanation:**A: 0.08 = 0.02 + β

_{A}x 0.04, β

_{A}= 1.5

B: 0.12 = 0.02 + β

_{B}x 0.04, β

_{B}= 2.5

C: 0.14 = 0.02 + β

_{C}x 0.04, β

_{A}= 3

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