Question #30
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 14
Status: Incorrect
Correct Answer: A
Your Answer: B
Part of Context Group: Q29-30
Shared Context
Question
Which two portfolios from Exhibit 3 best achieve Belair's goals in relation to business activity and inflation risk?
Answer Choices:
A. B and A.
B. B and E
C. C and E
Explanation
This question is about factor portfolios (i.e., a portfolio that has a sensitivity of one to a
particular factor and zero to all other factors). The only two factor portfolios in Exhibit 3
are C and E having exposure to the business cycle and inflation respectively. A short
position in portfolio E would eliminate the inflation risk.