The betas along with the factors in the APT adjust the expected return for:
A) calculation errors.
B) unsystematic risks.
C) spurious correlations of factors.
D) differences between actual and expected levels of factors.
E) All of

Question

Quizplus · Accepted Answer

The betas and factors in the APT are used to adjust the expected return for differences between actual and expected levels of factors. This helps to account for systematic risk, which is the risk that cannot be diversified away through diversification. Calculation errors, unsystematic risks, and spurious correlations of factors are not specifically addressed by the APT. Therefore, the correct answer is D.

The Betas Along with the Factors in the APT Adjust