In contrast to the CAPM,the APT assumes that there can be several sources of ________ that cannot be eliminated through diversification.
A)nonsystematic risk
B)systematic risk
C)credit risk
D)arbitrary risk

Question

Quizplus · Accepted Answer

The APT assumes that there can be several sources of systematic risk that cannot be eliminated through diversification, whereas the CAPM assumes that all risks, including systematic risks, can be diversified away. Therefore, the APT is more flexible and can explain a wider range of returns, since it acknowledges that there are multiple factors or sources of risk that affect asset prices, beyond just the market factor.

In Contrast to the CAPM,the APT Assumes That There Can