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Basic Question 6 of 11
Suppose we have one well-diversified portfolio that is sensitive to a single factor. The expected return, risk-free rate, and factor sensitivity are 0.08, 0.02, and 2, respectively. What is the factor risk premium?
B. 0.03
C. 0.06
A. 0.02
B. 0.03
C. 0.06
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I used your notes and passed ... highly recommended!
Lauren
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.