Compared with the capital pricing model (CAPM), one major advantage of the arbitrage pricing model (APT) is that
A) APT can deal with both portfolios and individual securities.
B) APT has an accurate risk measure.
C) APT does not require observing the market portfolio.
D) APT does not depend on expected returns.
E) none of the above

Question

Quizplus · Accepted Answer

The major advantage of APT over CAPM is that it does not require observing the market portfolio, which can be difficult to measure accurately. APT also allows for the analysis of both portfolios and individual securities, giving it an added advantage. While APT may not have an accurate risk measure and still relies on expected returns, its ability to work without observing the market portfolio is considered a significant benefit.

Compared with the Capital Pricing Model (CAPM), One Major Advantage