One of the Main Problems with the Arbitrage Pricing Theory

question 33

Multiple Choice

One of the main problems with the arbitrage pricing theory is __________.

• A) its use of several factors instead of a single market index to explain the risk-return relationship
• B) the introduction of non-systematic risk as a key factor in the risk-return relationship
• C) that the APT requires an even larger number of unrealistic assumptions than the CAPM
• D) the model fails to identify the key macroeconomic variables in the risk-return relationship

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