In developing the APT,Ross assumed that uncertainty in asset returns was a result of
A) a common macroeconomic factor
B) firm-specific factors
C) pricing error
D) neither a nor b
E) both a and b

Question

Quizplus · Accepted Answer

Ross assumed that uncertainty in asset returns was a result of both common macroeconomic factors and firm-specific factors. This led him to develop the APT, which considers the impact of multiple factors on asset returns. The APT assumes that the returns of an asset can be explained by a linear combination of factors that affect the asset's risk and return. The factors that are considered in the APT can include both macroeconomic and firm-specific variables.

In Developing the APT,Ross Assumed That Uncertainty in Asset Returns