Exhibit 7-7 USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) (1) Capital

question 20

Multiple Choice

Exhibit 7-7
USE THE FOLLOWING INFORMATION FOR THE NEXT QUESTION(S) (1) Capital markets are perfectly competitive.
(2) Quadratic utility function.
(3) Investors prefer more wealth to less wealth with certainty.
(4) Normally distributed security returns.
(5) Representation as a K factor model.
(6) A market portfolio that is mean-variance efficient.
-Refer to Exhibit 7-7. Which are not assumptions of the Arbitrage Pricing model?

• A) 1 and 3
• B) 1, 2, and 3
• C) 1, 2, and 5
• D) 2, 4, and 6
• E) All six are assumptions

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Definitions:

Diffusion of Responsibility

A phenomenon in social psychology where individuals feel less compelled to take action or assume responsibility in the presence of a large group of people.

Reciprocity Norm

A social norm that dictates that people should return the favor or kindness that has been done to them.

Social Exchange Theory

A social-psychological and sociological perspective that explains social change and stability as a process of negotiated exchanges between parties.

Personal Reward

A benefit or positive outcome that an individual receives or perceives to receive after performing a particular action.