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

Any well-diversified portfolio lying on the SML can serve as the benchmark portfolio for the APT. The true (and unobservable) market portfolio is only a requirement for the CAPM.

The APT Requires a Benchmark Portfolio