Both the APT and the CAPM Imply a Positive Relationship

question 32

Multiple Choice

Both the APT and the CAPM imply a positive relationship between expected return and risk. The APT views risk:

• A) very similarly to the CAPM via the beta of the security.
• B) in terms of individual inter-security correlation versus the beta of the CAPM.
• C) via the industry wide or market-wide factors creating correlation between securities versus the CAPM beta.
• D) the standardized deviation of the covariance.

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Definitions:

Moral Idolization

The adulation or excessive admiration of a person or concept as embodying ideal moral standards or virtues.

Equality

The state of being equal in status, rights, or opportunities; an ideal of ensuring fairness and justice among individuals or groups.

Linking People

The process of connecting individuals or groups for the purpose of communication, collaboration, or community building.

Goods And Services

The output of economic activities that satisfy human wants; goods are tangible products, while services are intangible activities or benefits.