CFA Practice Question

There are 119 practice questions for this study session.

CFA Practice Question

The major assumptions that are not required in the Arbitrage Pricing Theory (APT) include ______.

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:

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
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