Compared to the CAPM, the APT Has an Advantage: the Model

question 16

Multiple Choice

Compared to the CAPM, the APT has an advantage: the model adds factors until the unsystematic risk of any security is uncorrelated with the unsystematic risk of every other security.

• A)As a result, unsystematic risk steadily falls as the number of securities in the portfolio
• Increases.
• B)systematic risks do not decrease as the number of securities in the portfolio increases.
• C)A and B are both correct.
• D)A and B are both incorrect.
• E)Only B separates the APT from the CAPM.

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