Refer to the following list. Which are not assumptions of the Arbitrage Pricing model? (1) Capital markets are perfectly competitive.
(2) Quadratic utility function.
(3) Investors prefer more wealth to less wealth with certainty.
(4) Normally distributed security returns.
(5) Representation as a K factor model.
(6) A market portfolio that is mean-variance efficient.
A) (1) and (3)
B) (1), (2), and (3)
C) (1), (2), and (5)
D) (2), (4), and (6)
E) All six are assumptions

Question

Quizplus · Accepted Answer

The assumptions of the Arbitrage Pricing model are (2), (5), and (6). Assumptions (1), (3), and (4) are not specific to this model and apply to other financial models.

Refer to the Following List