The APT differs from the CAPM because the APT _________.
A) places more emphasis on market risk
B) minimizes the importance of diversification
C) recognizes multiple unsystematic risk factors
D) recognizes multiple systematic risk factors
E) none of these

Question

Quizplus · Accepted Answer

The APT recognizes multiple systematic risk factors, which can affect the returns of an asset or portfolio, while the CAPM only considers one systematic risk factor, which is the market risk. The APT also recognizes multiple unsystematic risk factors, but this does not minimize the importance of diversification, as diversification can still reduce the impact of these risks on a portfolio.

The APT Differs from the CAPM Because the APT _________