The APT requires a benchmark portfolio
A) that is equal to the true market portfolio.
B) that contains all securities in proportion to their market values.
C) that need not be well-diversified.
D) that is well-diversified and lies on the SML.
E) that is unobservable.

Question

Quizplus · Accepted Answer

The Arbitrage Pricing Theory (APT) requires a benchmark portfolio that is well-diversified and lies on the Security Market Line (SML) to ensure that it accurately reflects systematic risk factors.

The APT Requires a Benchmark Portfolio