Question

Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT maintains that the realized return on any stock depends on changes unique to the firm. The APT identifies all relevant factors that affect the realized returns on stocks. The APT model maintains that the realized returns on stocks depend on unexpected changes in fundamental economic factors. The APT is more general than the Capital Asset Pricing Model (CAPM).

Answer 1

Answer: The APT identifies all relevant factors that affect the realized returns on stocks.

Explanation:

Arbitrage pricing theory (APT) is an idea that has to do with the fact when the linear relationship between the macroeconomic variables and the expected return of an asset are analysed, such assets return can be forecasted.

In arbitrage pricing theory, several risk factors are used in determining prices. It also identifies all relevant factors that affect the realized returns on stocks.