Quiz 10: Arbitrage Pricing Theory and Multifactor Models of Risk and Return

Business

C Explanation: Both models attempt to explain asset pricing based on risk/return relationships.

A Explanation: 17.6% = 1.45(3.2%) + .86x + 5%; x = 9.26.

E Explanation: The coefficients are called factor betas, factor sensitivities, or factor loadings.