CFA Practice Question

There are 119 practice questions for this study session.

CFA Practice Question

Which of the following statements with respect to CAPM and APT is true?
A. Both models state the market as a whole is a factor that will influence specific security returns.
B. The APT model has far more restrictive assumptions than CAPM.
C. CAPM would have a greater predictive power in forecasting individual security returns than would an APT model.
Explanation: In general, while the CAPM states that the market portfolio only influences the security return, the APT model considers that many more factors than the market portfolio can influence security returns. The CAPM, then, can be though of as a subset of the APT model. Furthermore, because APT considers many more factors that influence security returns, it would have a greater predictive power in forecasting individual security returns than would the CAPM.

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