Topic 12 Arbitrage Pricing Theory and Multifactor Models of Risk and Return.pdf

Is more flexible than capm in its application has

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is more flexible than CAPM in its application. has fewer assumptions than CAPM. is often times thought of as a special case of the CAPM.
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Question ID: 438636 A) B) C) D) Questions #7-8 of 10 Question #7 of 10 Question ID: 638283 A) B) C) D) Which of the following is an assumption of the arbitrage pricing theory (APT)? The process generating asset returns can be represented by a 5-factor model. Security returns are normally distributed. Assets are priced such that no arbitrage opportunities exist. Investors have quadratic utility functions. Marcie Deiner is an investment manager with G&G Investment Corporation. She works with a variety of clients who differ in terms of experience, risk aversion and wealth. Deiner recently attended a seminar on multifactor analysis. Among other things, the seminar taught how the assumptions concerning the Arbitrage Pricing Theory (APT) model are different from those of the Capital Asset Pricing Model (CAPM). One of the examples used in the seminar is below. E(R ) = R + f B + f B + f B where: f = 3.0%, f = −40.0%, and f = 50.0%. Beta estimates for Growth and Value funds for a three factor model Factor 1 Factor 2 Factor 3 Betas for Growth 0.5 0.7 1.2 Betas for Value 0.2 1.8 0.6 For the model used as an example in the seminar, if the T-bill rate is 3.5%, what are the expected returns for the Growth and Value Funds? E(R ) E(R ) 3.1% −3.16% 93.0% 106.1% 37.0% −37.9% 33.5% −41.4% i f 1 i, 1 2 i, 2 3 i, 3. 1 2 3 Growth Value
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Question #8 of 10 Question ID: 438627 A) B) C) D) Question #9 of 10 Question ID: 438633 A) B) C) D) Question #10 of 10 Question ID: 438631 Which of the following is
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