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:

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Families belonging to the middle socioeconomic status, often characterized by a balanced level of income, education, and job security.

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Expert recommendations or guidance provided by individuals who are qualified in a specific field.

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The act of taking initiative, participating directly, and being engaged in activities or decisions.

Piaget

A Swiss psychologist known for his pioneering work in child development and cognitive theory.