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Basic Question 7 of 11

Compared to CAPM, APT ______.

I. allows more risk factors
II. assumes investors are risk-averse
III. assumes a normal distribution of returns
IV. has fewer restrictive assumptions
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User Contributed Comments 3

User Comment
baller123 APT allows more risk factors but it doesn't require them. Only one factor can be utilized if desired.
scottharris The CAPM can be considered as a special case of the APT where there is only one risk factor, the market portfolio.
jimmyvo oth capm and apt assume investors are risk-averse and normal distr.
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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!
Barnes

Barnes

Learning Outcome Statements

describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models;

define arbitrage opportunity and determine whether an arbitrage opportunity exists;

calculate the expected return on an asset given an asset's factor sensitivities and the factor risk premiums;

CFA® 2025 Level II Curriculum, Volume 5, Module 40.