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Return Beta Relationship Quiz

In the context of the Arbitrage Pricing Theory, as a well-diversified portfolio becomes larger its nonsystematic risk approaches

A well-diversified portfolio is defined as

The APT requires a benchmark portfolio

Imposing the no-arbitrage condition on a single-factor security market implies which of the following statements?  
I) the expected return-beta relationship is maintained for all but a small number of well-diversified portfolios.
II) the expected return-beta relationship is maintained for all well-diversified portfolios.
III) the expected return-beta relationship is maintained for all but a small number of individual securities.
IV) the expected return-beta relationship is maintained for all individual securities. 

The term "arbitrage" refers to

To take advantage of an arbitrage opportunity, an investor would  
I) construct a zero investment portfolio that will yield a sure profit.
II) construct a zero beta investment portfolio that will yield a sure profit.
III) make simultaneous trades in two markets without any net investment.
IV) short sell the asset in the low-priced market and buy it in the high-priced market. 

The factor F in the APT model represents

In the APT model, what is the nonsystematic standard deviation of an equally-weighted portfolio that has an average value of (ei) equal to 25% and 50 securities?

Which of the following is true about the security market line (SML) derived from the APT?

Which of the following is false about the security market line (SML) derived from the APT?

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