1.

Consider the one-factor APT. The standard deviation of returns on the factor portfolio is 6%. The beta of a well-diversified portfolio on the factor is 1.1. The standard deviation of returns on the well-diversified portfolio is approximately:

2.

The feature of the APT that offers the greatest potential advantage over the CAPM is the:

Select one:

a. use of several factors instead of a single market index to explain the risk-return relationship.

b. identification of anticipated changes in production, inflation, and term structure as key factors in explaining the risk-return relationship.

c. superior measurement of the risk-free rate of return over historical time periods.

d. variability of coefficients of sensitivity to the APT factors for a given asset over time.

e. elimination of firm-specific risk.