The Arbitrage Pricing Theory (APT)

question 7

Multiple Choice

The arbitrage pricing theory (APT)

• A)considers only one factor and is a narrower model than the CAPM.
• B)considers more factors than the CAPM and is a broader model.
• C)is useful only for well-diversified portfolios of common stock.
• D)is Easy to practice because the factors are readily observable.

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Definitions:

Unemployment

A condition where people who have the ability and desire to work are unable to secure jobs.

Production Possibilities Frontier

A curve depicting the maximum attainable combinations of two or more products that may be produced with available resources and technology.

Inward Shift

Describes a decrease in the potential output of an economy, often visualized as a leftward shift of the Production Possibility Frontier (PPF).

Production Possibilities Curve

A graphical representation that shows the maximum possible output combinations of two goods that an economy can achieve with its existing resources and technology under full employment.