CFA Practice Question

There are 119 practice questions for this study session.

CFA Practice Question

Which assumption best links the theories of the CAPM and the APT?
A. Once a portfolio is well diversified, all risk factors unique to a security will be diversified away.
B. All investors will hold the market portfolio.
C. Security prices are only affected by movements in the market.
Explanation: Both models assume that security returns will be dependent upon some "macro" or systematic factors. Consequently, when securities are added to a portfolio, the risk factors that are unique to specific securities will offset each other until they are all diversified away.

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