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

# Least likely an assumption of the apt model asset

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least likely an assumption of the APT model? asset returns are explained by a factor model. a large number of available assets for investment allow investors to eliminate non- systematic risk through diversification. no arbitrage opportunities are available to investors because capital markets are perfectly competitive. asset returns are normally distributed. Given a three-factor arbitrage pricing theory (APT) model, what is the expected return on the Premium Dividend Yield Fund? The factor risk premiums to factors 1, 2 and 3 are 8%, 12% and 5%, respectively. The fund has sensitivities to the factors 1, 2, and 3 of 2.0, 1.0 and 1.0, respectively. The risk-free rate is 3.0%. 36.0%. 50.0%. 28.0%. 33.0%. An arbitrage pricing theory (APT) model has the following characteristics: The risk free rate is 3.8 percent. Factor risk premiums are: (7 percent) A. (4 percent) B. (2 percent) C. (10 percent) D. Assume Silver Linings Fund has the following sensitivities to the factors: Sensitivity to A is 0.5. Sensitivity to B is 1.2. Sensitivity to C is 2.1.

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A) B) C) D) Sensitivity to D is 0.2. The expected return on the Silver Linings Fund is: 14.5 percent. 18.3 percent. 20.1 percent. 16.8 percent.
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