CFA Practice Question

There are 119 practice questions for this study session.

CFA Practice Question

Which is true regarding 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?
You need to log in first to add your comment.