Consider an apt world with two systematic risks market risk


Consider an APT world with two systematic risks: Market risk and Interest Rate risk. Which of the following statements must be false about factor portfolios in this setting:

1. The market risk factor portfolio contains all the systematic risk in this world.

2. The market risk factor portfolio is sensitive to changes in market risk and interest rate risk factor risk.

3. The interest rate risk factor portfolio is sensitive only to unexpected changes in interest rates.

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Financial Management: Consider an apt world with two systematic risks market risk
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