Question

Which of the following is(are) true regarding the APT? I) The security market line does not apply to the APT. II) More than one factor can be important in determining returns. III) Almost all individual securities satisfy the APT relationship. IV) It doesn't rely on the market portfolio that contains all assets.

Answer 1

The correct answer to the following question is option (II), (III), (IV).

Explanation:

The APT stands for Arbitrage pricing theory, which is the alternative to the CAPM (Capital Asset Pricing Model ) for explaining the returns of the portfolio or the assets.

It is the multiple factors of CAPM which is base on the idea that the returns of assets can predict by using linear relationships in between a number of the macroeconomics variables that capture the systematic risk and the asset's expected return.