Question #32
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 15
Status: Correct
Correct Answer: C
Question
Identify the most accurate statement regarding multifactor models from among the following.
Answer Choices:
A. Macroeconomic factor models include explanatory variables such as real GDP growth and the price-to-earnings ratio and fundamental factor models include explanatory variables such as firm size and unexpected inflation
B. Macroeconomic factor models include explanatory variables such as firm size and the price-to-earnings ratio and fundamental factor models include explanatory variables such as real GDP growth and unexpected inflation
C. Macroeconomic factor models include explanatory variables such as the business cycle, interest rates, and inflation, and fundamental factor models include explanatory variables such as firm size and the price-to-earnings ratio
Explanation
Macroeconomic factor models include multiple risk factors such as the business cycle,
interest rates, and inflation. Fundamental factor models include specific characteristics of
the securities themselves such as firm size and the price-to-earnings ratio.