WHICH OF THE FOLLOWING STATEMENTS ABOUT ARBITRAGE PRICING THEORY (A...

1. Which of the following statements about arbitrage pricing theory (APT) is most likely true?

A. APT represents an asset’s risk as a linear function of factors representing unsystematic

risk.

B. The number of underlying factors in APT is fixed.

C. A key assumption of APT is that there are many investable assets such that asset specific

risk can be diversified.