Which one of the following statements is true?
A)Both APT and CAPM argue that expected excess return must be proportional to the beta(s).
B)APT and CAPM are the only quantitative approaches to measure expected returns in risky assets.
C)The factors to be used in the APT are easier to identify than the factor used in the CAPM.
D)CAPM provides the means for a more-detailed estimate of a security's expected return than does APT.
E)CAPM assigns a beta of 1 to the market while APT assigns the market a beta of zero.

Question

Quizplus · Accepted Answer

Both APT and CAPM argue that expected excess return must be proportional to the beta(s). This is a fundamental principle of both models. Option B is incorrect as there are other quantitative approaches to measure expected returns in risky assets. Option C is incorrect as identifying factors for the APT can be just as difficult as identifying the single factor in the CAPM. Option D is incorrect as APT has the potential for a more detailed estimate of expected return, as it allows for multiple factors instead of just one. Option E is incorrect as both models assign a beta of 1 to the market.

Which One of the Following Statements Is True