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SUMMARY

SUMMARY > Risk refers to the variability of expected returns associated with a given security or asset. > The absolute return on an investment for a given period of time; say a year, consists of annual income plus change in the market price of the investment...

Multifactor Linear Model (Example)

EXAMPLE Suppose the riskless return is 5 per cent and the market portfolio's expected return (r,) is 11 per cent. Assume further that beta coefficients for security 1.3 (in relation to market portfolio, (in relation to growth rate of GOP) and (in relation to...

Factors

FACTORS It may be emphasised here that the APT framework normally includes the market risk premium (return on the market portfolio minus risk free rate) as one of the factors; it may be recapitulated that market risk premium is the sole factor used in the CAPM. The...

Multifactor Linear Model

Multifactor Linear Model Another useful way of explaining the APT is that it relates the returns of security within a multivariate framework in which the return relationships arc linear. Multivariate framework implies that there are a variety of different factors...