The feature of the general version of the arbitrage pricing theory (APT) that offers the greatest potential advantage over the simple CAPM is the:a. Identification of anticipated changes in production, inflation, and term structure of interest rates as key factors explaining the risk–return relationship.b. Superior measurement of the risk-free rate of return over historical time periods.c. Variability of coefficients of sensitivity to the APT factors for a given asset over time.d. Use of several factors instead of a single market index to explain the risk–return relationship.
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
The feature of the general version of the arbitrage pricing theory (APT) that offers the greatest potential advantage over the simple
a. Identification of anticipated changes in production, inflation, and term structure of interest rates as key factors explaining the risk–return relationship.
b. Superior measurement of the risk-free
c. Variability of coefficients of sensitivity to the APT factors for a given asset over time.
d. Use of several factors instead of a single market index to explain the risk–return relationship.
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