An Advantage of the APT Over CAPM Is

question 2

Multiple Choice

An advantage of the APT over CAPM is:

• A) APT can handle multiple factors.
• B) if the factors can be properly identified, the APT may have more explanation/predictive power for returns.
• C) the APT forces unsystematic risk to be negative to offset systematic risk; thus making the total portfolio risk free, allowing for an arbitrage opportunity for the astute investor.
• D) APT can handle multiple factors; and if the factors can be properly identified, the APT may have more explanation/predictive power for returns.
• E) All of these.

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Definitions:

Interest Rate

The percentage charged on a loan or paid on savings over a specific period, usually expressed as an annual percentage of the principal.

Invested Today

The action of allocating resources, usually money, in the present with the expectation of receiving a future return.

Equal Payments

Regular payments of the same amount over time, commonly associated with loans or annuities.

Interest Rate

The amount charged by lenders to borrowers for the use of money, expressed as a percentage of the principal, per period of time.