- CFA Exams
- CFA Level I Exam
- Study Session 16. Portfolio Management (1)
- Reading 44. Using Multifactor Models
- Subject 1. Arbitrage pricing theory
CFA Practice Question
In the APT equation 2, the expected reward for bearing the risk of factor j is:
B. βj
C. αj
A. λj
B. βj
C. αj
Correct Answer: A
That is called the factor risk premium or factor price. It represents the expected reward for bearing the risk of a portfolio with a sensitivity of 1 to factor j and a sensitivity of 0 to all other factors.
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