Both the APT and the CAPM Imply a Positive Relationship

question 27

Multiple Choice

Both the APT and the CAPM imply a positive relationship between expected return and risk. The APT views risk:

• A) very similarly to the CAPM via the beta of the security.
• B) in terms of individual intersecurity correlation versus the beta of the CAPM.
• C) via the industry wide or marketwide factors creating correlation between securities.
• D) as the standardized deviation of the covariance.
• E) None of these.

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Definitions:

Heschl's Gyrus

A region of the brain located in the auditory cortex, primarily involved in processing sounds and speech perception.

Processing Music

The cognitive and neural operations involved in perceiving, interpreting, and responding to music.

Language

A system of communication used by a particular community or country, involving the use of words in a structured and conventional way.

Taste Perception

The sensory process by which the flavor of substances is recognized and interpreted by the brain, starting from taste bud stimulation.