Arbitrage Pricing Theory and Factor Models Quiz

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The APT suggests that the expected return is directly proportional to sensitivity to interest rates, inflation, industrial productivity, and investor risk attitudes.

True

Roll and Ross (1980) found that the four factor linear version of the APT is less accurate than the single factor (Index) CAPM in predicting security and portfolio returns.

False

The APT model proposes that the expected return is inversely proportional to sensitivity to interest rates, inflation, and industrial productivity.

False

Test your knowledge of the Arbitrage Pricing Theory (APT) and factor models with a focus on Roll and Ross's four factor linear version. Explore the relationship between expected return and sensitivity to interest rates, inflation, industrial productivity, and investor risk attitudes.

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