The arbitrage pricing theory (APT)
A)considers only one factor and is a narrower model than the CAPM.
B)considers more factors than the CAPM and is a broader model.
C)is useful only for well-diversified portfolios of common stock.
D)is Easy to practice because the factors are readily observable.

Question

Quizplus · Accepted Answer

The APT considers more factors than the CAPM and is a broader model. The APT assumes that an asset's return is influenced by multiple factors, not just the market factor, which is the only factor considered by the CAPM. The APT is a more flexible and realistic model but also more complicated to use because the factors may not be readily observable or easy to measure.

The Arbitrage Pricing Theory (APT)