USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

-Refer to Exhibit 7.8. In the list above, which are assumptions of the Arbitrage Pricing Model?
A) (1) and (4)
B) (1), (2), and (3)
C) (1), (3), and (5)
D) (2), (3), (4), and (6)
E) (1), (2), (3), (4), (5), and (6)

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
 
-Refer to Exhibit 7.8. In the list above, which are assumptions of the Arbitrage Pricing Model?
A) (1) and (4) 
B) (1), (2), and (3) 
C) (1), (3), and (5) 
D) (2), (3), (4), and (6) 
E) (1), (2), (3), (4), (5), and (6)

Quizplus · Accepted Answer

The Arbitrage Pricing Theory (APT) assumes that asset returns can be predicted using a linear relationship with various macroeconomic factors (1), that there are no arbitrage opportunities (3), and that markets are efficient, allowing for the quick incorporation of information into prices (5).