Why should I choose AnalystNotes?
Simply put: AnalystNotes offers the best value and the best product available to help you pass your exams.
Basic Question 3 of 11
Which is true regarding factor portfolios?
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.
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.
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? |
I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes
Learning Outcome Statements
describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models;
define arbitrage opportunity and determine whether an arbitrage opportunity exists;
calculate the expected return on an asset given an asset's factor sensitivities and the factor risk premiums;
CFA® 2025 Level II Curriculum, Volume 5, Module 40.