In the One Factor (APT) Model,the Characteristic Line to Estimate

question 48

Multiple Choice

In the one factor (APT) model,the characteristic line to estimate β_i passes through the origin,unlike the estimate used in the CAPM because:

• A) the relationship is between the actual return on a security and the market index.
• B) the relationship measures the change in the security return over time versus the change in the market return.
• C) the relationship measures the change in excess return on a security versus GNP.
• D) the relationship measures the change in excess return on a security versus the return on the factor about its mean of zero.
• E) Cannot be determined without actual data.

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Definitions:

Factor Analysis

A statistical method used to identify underlying variables, or factors, that explain the pattern of correlations among multiple observed measures.

Empirically Derived Testing

A method of creating assessment tools based on data collected from experiments or observations, as opposed to theory-based methods.

Projective Testing

A psychological assessment tool that uses ambiguous stimuli to elicit responses that reveal aspects of an individual’s personality.

Personality Trait

enduring characteristics or qualities that describe an individual's behavior across different situations.