The CAPM can be viewed as an APT model with one factor.

Question

Quizplus · Accepted Answer

The CAPM and the APT (Arbitrage Pricing Theory) are both asset pricing models used to determine the expected return on an asset. While the CAPM is a single-factor model that only considers the market return as the only factor affecting asset returns, the APT is a multi-factor model that considers multiple sources of systematic risk affecting asset returns, such as changes in interest rates or inflation. Therefore, the CAPM can be viewed as a simplified version of the APT, with only one factor, which is the market return.

The CAPM Can Be Viewed as an APT Model with One