Question #11
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 5
Status: Correct
Correct Answer: A
Question
Which of the following is NOT an underlying assumption of the arbitrage pricing theory (APT)?
Answer Choices:
A. A market portfolio exists that contains all risky assets and is mean-variance efficient
B. There are a sufficient number of assets for investors to create diversified portfolios in which firm-specific risk is eliminated
C. Asset returns are described by a K factor model
Explanation
The APT makes no assumption about a market portfolio.