Question

1. The Russell 3000 index contains 3000 largest US companies and has a total risk of 25%. This means that

A. The systematic risk of Russell 3000 index is 25%

B. the unsystematic risk of Russell 3000 index is 25%

C. The standard deviation of Russell 3000 is 25% and consists of both unsystematic and systematic risk.

2. Which of the following is least likely to be true for multifactor models:

A. Are return-generating models.

B. Use macroeconomic or fundamental factors but not statistical factors.

C. Use factors that correlate with asset returns to estimate the returns of a security.

Answer 1

Answer 1

Correct option : Option (C): The standard deviation of Russell 3000 is 25% and consists of both unsystematic and systematic risk.

Explanation

In finance, the total risk of an index or a stock is denoted by its standard deviation. It is a summation of the systematic risk and unsystematic risk of such index.

Answer 2

Correct option : Option (A) : Are return generating models

Explanation

The statements in option (B) and option (C) are quite true about the multi factors models like the Arbitrage pricing theory model which considers the factors that either uses macro or fundamental factors orthe factors that relates with assets returns. Hence these statements are true.