CFA Level I · CFA Level I Exam · The Capital Asset Pricing Model, Market Model, and Other Factor-Based Equity Models
Compared with the CAPM, the APT is most likely described as:
APT allows multiple sources of systematic risk but does not identify the factors, leaving the analyst to specify them. CAPM uses a single market factor and depends on the market portfolio being mean-variance efficient, which APT does not require.
- Arequiring that the market portfolio be mean-variance efficient.
- Bspecifying exactly which factors must be included in the model.
- Callowing more than one source of systematic risk without identifying the factors.Correct
Explanation
APT allows several systematic factors but does not say which ones; the analyst must choose them. CAPM relies on the market portfolio being efficient with a single beta. APT does not require this.
Did you get it right without looking?
One question tells you little. A timed set on The Capital Asset Pricing Model, Market Model, and Other Factor-Based Equity Models shows your real accuracy, how long you take and where you lose marks.
More The Capital Asset Pricing Model, Market Model, and Other Factor-Based Equity Models questions
- An analyst estimates a Fama-French three-factor regression for a fund and finds a significantly negative loading on HML and a significantly …
- Assume the risk-free rate and the market risk premium are unchanged. If the beta of a stock rises from 0.8 to 1.3, the stock's required retu…
- Arbitrage pricing theory (APT) most likely assumes that the expected return of an asset is a linear function of:
- A stock has a correlation of 0.60 with the market. The stock's return standard deviation is 30% and the market's is 20%. The stock's beta is…
- Compared with using five years of monthly returns, estimating beta with a much shorter window of daily returns is most likely to:
- When estimating a stock's beta from a market model regression, using a longer data series with more frequent observations (for example, 5 ye…