Practice Question Set: APT and Multifactor Models of Risk and Return

Topic Progress:

Chapter 6, Multifactor Models of Risk-Adjusted Asset Returns Practice Question Set contains 34 pages covering the following learning objectives:

* Explain the arbitrage pricing theory (APT), describe its assumptions, and compare the APT to the CAPM.

* Describe the inputs (including factor betas) to a multifactor model.

* Calculate the expected return of an asset using a single-factor and a multifactor model.

* Explain models that account for correlations between asset returns in a multi-asset portfolio.

* Explain how to construct a portfolio to hedge exposure to multiple factors.

* Describe and apply the Fama-French three-factor model in estimating asset returns.

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