An Important Difference Between CAPM and APT Is

question 27

Multiple Choice

An important difference between CAPM and APT is

• A)CAPM depends on risk-return dominance; APT depends on a no arbitrage condition.
• B)CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
• C)implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.
• D)All of the options are true.
• E)Both CAPM depends on risk-return dominance; APT depends on a no arbitrage condition and CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.

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Definitions:

Positively Disposed

Having a favorable attitude or inclination towards something or someone.

Critical Thinking

The act of deliberately and adeptly forming, using, examining, combining, and assessing data to derive a solution or conclusion.

Truth-seeking

The pursuit of understanding and knowledge by questioning, evidence evaluation, and skepticism.

Probing Questions

Deep or insightful inquiries designed to elicit more detailed or revealing responses.