CFA Practice Question

There are 119 practice questions for this study session.

CFA Practice Question

Suppose there are three well-diversified portfolios (PA, PB and PC) 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 + βA x 0.04, βA = 1.5

B: 0.12 = 0.02 + βB x 0.04, βB = 2.5

C: 0.14 = 0.02 + βC x 0.04, βA = 3

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