Question #34
Reading: Reading 36 Using Multifactor Models
PDF File: Reading 36 Using Multifactor Models.pdf
Page: 16
Status: Correct
Correct Answer: A
Question
Arbitrage pricing models assume which risk is priced?
Answer Choices:
A. Systematic
B. Unsystematic
C. Both systematic and unsystematic
Explanation
Unsystematic risk can be diversified away. Thus, arbitrage pricing reflects only systematic
risk. It is assumed that the portfolio manager will take steps to diversify and reduce risk.