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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