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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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with the level of production, such as rent, salaries, and equipment depreciation, associated specifically with manufacturing.

Financial Advantage

The benefit gained in financial terms, which can result in better profitability or cost savings.

Fixed Manufacturing Expenses

Costs associated with production that do not vary with the level of output, including salaries of permanent staff and depreciation of machinery.

Fixed Selling

Refers to the selling expenses that do not change with the level of sales.