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
E)none of the above

Question

Quizplus · Accepted Answer

The APT's use of several factors instead of a single market index to explain the risk-return relationship offers the greatest potential advantage over the CAPM, as it allows for a more comprehensive and nuanced understanding of the sources of risk and return in an asset's performance. This approach is particularly valuable in complex or rapidly changing markets where a single market index may not capture all relevant factors.

The Feature of the APT That Offers the Greatest Potential