An Important Difference Between CAPM and APT Is

question 66

Multiple Choice

An important difference between CAPM and APT is

• A) CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition.
• B) CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
• C) implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.
• D) Both CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition and CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
• E) All of the options are true.

---

Definitions:

Abstract Internal Traits

The unobservable qualities or characteristics that form an individual's personality, such as thoughts, feelings, and desires.

External Traits

Observable characteristics of an individual, which can be physical or behavioral, influenced by both genetic and environmental factors.

External Rewards

Incentives provided from an external source to motivate behavior, such as money, grades, or praise.

Perspective-Taking Skills

The ability to understand a situation or concept from an alternative point of view, including another person's thoughts, feelings, and motivations.