Question

The most significant conceptual difference between the arbitrage pricing theory (i.e. APT or factor model) and the capital asset pricing model (CAPM) is that APT _____________.
a. places less emphasis on market risk
b. recognizes multiple unsystematic risk factors
c. recognizes only one systematic risk factor
d. recognizes multiple systematic risk factors

Answer 1

Answer:

Option C: Recognizes only one systematic risk factor

Explanation:

Arbitrage pricing theory (APT) is a theory of risk-return relationships gotten from no-arbitrage and considerations in large capital markets

APT was said to be developed by Steve Ross, 1976 and it uses "No-Arbitrage" Assumption. It was designed mainly to provide "economic" variables to the determination of asset pricing.

capital asset pricing model (CAPM) is simply a model that shows the required rate of return on a security to its systematic risk as taken up or measured by beta.