- CFA Exams
- CFA Level I Exam
- Study Session 16. Portfolio Management (1)
- Reading 44. Using Multifactor Models
- Subject 1. Arbitrage pricing theory
CFA Practice Question
The major assumptions that are not required in the Arbitrage Pricing Theory (APT) include ______.
II. normally distributed security returns
III. a market portfolio that contains all risky assets and that is mean-variance efficient
I. quadratic utility function
II. normally distributed security returns
III. a market portfolio that contains all risky assets and that is mean-variance efficient
A. I and II only
B. II and III only
C. All of these assumptions are not required.
Explanation: Assumptions:
There are many assets, so asset-specific risk can be eliminated.
Assets are priced such that there are no arbitrage opportunities.
Asset returns are described by a factor model (note that the number of factors is not specified).
There are many assets, so asset-specific risk can be eliminated.
Assets are priced such that there are no arbitrage opportunities.
User Contributed Comments 2
User | Comment |
---|---|
shiva5555 | What's a quadratic utility function? |
alit86 | basically a non linear function |