|Practice Question 10|
Which of the following statements is (are) true with respect to the comparison drawn between the arbitrage pricing model and CAPM?
I. Both models assert that there is a linear relationship between risk and return.
II. Both models define equilibrium as a state where all securities have the same reward to risk ratio.
III. The fundamental factors for the APT model are not known, whereas for CAPM, there is only one fundamental factor, the market portfolio.
IV. CAPM is based upon less restrictive assumptions than the APT model.
A. I and III only.
B. I and IV only.
C. II only.
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