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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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Martin Rockenfeldt

Martin Rockenfeldt

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.