Question

The APT requires a benchmark portfolio

A.that is equal to the true market portfolio.
B.that contains all securities in proportion to their market values.
C.that need not be well-diversified.
D.that is well-diversified and lies on the SML.
E.that is unobservable.

Answer 1

The APT requires a benchmark portfolio A that contains all securities in proportion to their market values.

Step-by-step explanation:

The APT (Arbitrage Pricing Theory) requires a benchmark portfolio A. that contains all securities in proportion to their market values. This means that benchmark portfolio A should have each security weighted according to its market value. The purpose of the benchmark portfolio is to provide a reference point for evaluating the performance of other portfolios.