“APT IS BASED IN PART ON THE ASSUMPTION THAT AS ASSETS ARE ADDED TO A PORTFOLIO, THE PORTFOLIO BECOMES WELL DIVERSIFIED AND ASSET-SPECIFIC RISK IS ELIMINATED

1. - CFA 2018 LEVEL 2 PORTFORLIO QUESTION BANK R48 INTRODUCTION TO MULTIFACTOR MODELS Q BANK
CFA 2018 LEVEL 2 PORTFORLIO QUESTION BANK R48 INTRODUCTION TO MULTIFACTOR MODELS Q BANK

1. C is correct. “APT is based in part on the assumption that as assets are added to a portfolio,

the portfolio becomes well diversified and asset-specific risk is eliminated.” Therefore,

adding assets to a diversified portfolio should decrease its specific risk. Section 3. LO.a.