The feature of the APT that offers the greatest potential advantage over the CAPM is the
A)use of several factors instead of a single market index to explain the risk-return relationship.
B)identification of anticipated changes in production, inflation, and term structure as key factors in explaining the risk-return relationship.
C)superior measurement of the risk-free rate of return over historical time periods.
D)variability of coefficients of sensitivity to the APT factors for a given asset over time.

Question

Quizplus · Accepted Answer

The use of several factors instead of a single market index in explaining the risk-return relationship allows for a more nuanced understanding of a security's risk and return. This can lead to more accurate pricing and better portfolio management.

The Feature of the APT That Offers the Greatest Potential