The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets,whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.
A) APT,CAPM
B) APT,OPM
C) CAPM,APT
D) CAPM,OPM
E) none of these

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) provides an unequivocal statement on the expected return-beta relationship for all assets, stating that the expected return of an asset is equal to the risk-free rate plus the market risk premium multiplied by the asset's beta. On the other hand, the Arbitrage Pricing Theory (APT) implies that there may exist a few securities that do not follow this relationship, whereas it holds for the majority of securities. Therefore, the best choice with the given options is C) CAPM for the first blank and APT for the second blank.

The ____________ Provides an Unequivocal Statement on the Expected Return-Beta