- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 41. Using Multifactor Models
- Subject 1. Arbitrage Pricing Theory
CFA Practice Question
Which statement(s) is (are) true about APT?
II. It uses risk premiums based on stock specific variables.
III. It uses key macroeconomic factors relevant to determine a security's returns.
IV. Investors are risk-averse.
I. It uses the development of a security's price over time to calculate the expected return.
II. It uses risk premiums based on stock specific variables.
III. It uses key macroeconomic factors relevant to determine a security's returns.
IV. Investors are risk-averse.
A. I and III
B. III only
C. III and IV
User Contributed Comments 3
| User | Comment |
|---|---|
| tim2 | hmm.. the LOS says the returns depend on the systematic risk - Seems to kind of assume investors are averse to risk |
| broadex | It does not make such an assumption though. |
| SMcalister | Assumptions of CAPM = Maximise economic utility, Investors are rational and risk-aver, Investors are broadly diversified and they are price takers. Assumptions of APT = Capital Markets are perfectly competitive, Investors prefer more wealth to less with certainty and The process of generating asset returns can be expressed in a linear function of K risk factors. Notice that the risk averse assumption is dropped for APT. |