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Basic Question 9 of 11
Which is not a major assumption in the Arbitrage Pricing Theory (APT)?
B. A market portfolio which contains all risky assets and which is mean-variance efficient.
C. The stochastic process generating asset returns can be represented as a K factor model.
A. Capital markets are perfectly competitive.
B. A market portfolio which contains all risky assets and which is mean-variance efficient.
C. The stochastic process generating asset returns can be represented as a K factor model.
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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.