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.

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