Question #22
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 10
Status: Correct
Correct Answer: B
Question
Which of the following is not an assumption of the arbitrage pricing theory (APT)?
Answer Choices:
A. Returns on assets can be described by a multi-factor process
B. Security returns are normally distributed
C. The market contains enough stocks so that unsystematic risk can be diversified away
Explanation
APT does not require that security returns be normally distributed.