According to the arbitrage pricing theory, the return
On a stock
A) is not related to the expected return on the stock
B) depends on the stock's responsiveness to unexpected changes
C) is reduced through the construction of diversified portfolios
D) equals the market return if the expected rate of inflation is realized

Question

Quizplus · Accepted Answer

According to the arbitrage pricing theory, the return on a stock depends on the stock's responsiveness to unexpected changes. The theory assumes that there are multiple factors that affect the return on a stock, and the stock's sensitivity to these factors determines its return. Therefore, the expected return on the stock is not the only factor that determines its return.

According to the Arbitrage Pricing Theory, the Return