An Important Difference Between CAPM and APT Is

question 1

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) 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.
• E) All of the options are true.

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Definitions:

Activity Rate

A measure used in activity-based costing to assign overhead costs to products or services, based on specific activities.

Cost Pool

A grouping of individual costs, typically by department or service center, from which cost allocations are made to products or services.

Cost Pool

A collection of specific expenses, usually organized by department or service area, used as a basis for assigning costs to products or services.

Direct Materials Dollars

The total cost of all the raw materials used in the production of a product.