In Developing the APT, Ross Assumed That Uncertainty in Asset

question 19

Multiple Choice

In developing the APT, Ross assumed that uncertainty in asset returns was a result of

• A) a common macroeconomic factor.
• B) firm-specific factors.
• C) pricing error.
• D) a common macroeconomic factor and firm-specific factors.

---

Definitions:

Consolidation

The process of combining multiple entities, assets, or financial statements into a single entity or financial statement.

Acquisition

The process of purchasing another company to gain control, typically through a buyout or merger.

Merger

The combination of two or more businesses under one ownership in which all but one legal entity ceases to exist, and the combined organization continues under the name of the surviving firm. When the surviving firm acquires the stock of the others, the transaction can be called an acquisition. A merger is friendly if it has the approval and support of the acquired (target) firm’s management. It is unfriendly if the target’s management resists. The term merger tends to be used loosely to refer to any business combination.

Legal Entity

An organization or business that is recognized by law as having a distinct legal existence, separate from its owners.