Arbitrage pricing theory is a model that relates expected returns on securities to
A)security risk and yield spreads
B)yield spreads and yield curve slope
C)anticipated economic factors
D)multiple risk factors

Question

Quizplus · Accepted Answer

Arbitrage pricing theory considers multiple risk factors that affect the expected returns on securities, such as interest rates, inflation, market volatility, and other economic factors. Unlike other models that rely on a single measure of risk, APT provides a more flexible framework for pricing assets based on their exposure to various sources of uncertainty. By identifying the underlying factors that drive asset prices, APT allows investors to take advantage of pricing discrepancies and profit from arbitrage opportunities.

Arbitrage Pricing Theory Is a Model That Relates Expected Returns