Question #25
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 11
Status: Correct
Correct Answer: B
Question
Which of the following does NOT describe the arbitrage pricing theory (APT)?
Answer Choices:
A. It requires a weaker set of assumptions than the CAPM to derive
B. There are assumed to be at least five factors that explain asset returns
C. It is an equilibrium-pricing model like the CAPM
Explanation
APT is a k-factor model, in which the number of factors, k, is assumed to be a lot smaller
than the number of assets; no specific number of factors is assumed.