Which of the Following Statements Concerning Arbitrage Pricing Theory (APT)

question 38

Multiple Choice

Which of the following statements concerning arbitrage pricing theory (APT) is FALSE?

• A) APT assumes a linear relation between required return and systematic risk.
• B) The residual term e_j is a random error or noise term that is specific to asset j
• C) APT identifies market risk as a factor that is priced by the market.
• D) The intercept term represents the asset's expected return if all factors are equal to their expectation.
• E) The systematic risk factor in the one-factor market model is the difference between actual market index returns and the mean market return.

Grasp the concepts of scarcity and how it affects choices.

Comprehend the difference between equality and efficiency in economic terms.

Recognize the basic principles of decision making in economics.

Identify the role of opportunity cost in economic decisions.