Question

One of the main problems with the arbitrage pricing theory is __________.A. its use of several factors instead of a single market index to explain the risk-returnrelationshipB. the introduction of non-systematic risk as a key factor in the risk-return relationshipC. that the APT requires an even larger number of unrealistic assumptions than the CAPMD. the model fails to identify the key macroeconomic variables in the risk-return relationship

Answer 1

Answer:

The model fails to identify the key macroeconomic variables in the risk-return relationship

Explanation:

This is an asset valuation equilibrium model. Its central idea is that the expected return on an asset has a linear function of its systematic risk, thus measured by a series of beta coefficients associated with many other common explanatory factors. The APT considers that the only risk that the market is willing to pay is the systematic one, since the rest of the risk can be eliminated via diversification.