1.

Which of the following statement(s) is/are CORRECT regarding the Arbitrage Pricing Theory (APT)?

[I]: The APT applies to well-diversified portfolios, but not necessarily to single risky assets.

[II]: Unlike the CAPM, the APT can be derived without having a unique market portfolio.

[III] Under the APT, the equilibrium can be quickly restored even if only a few investors recognize the arbitrage opportunity.

Select one:

a. [I] only.

b. [I] and [II] only.

c. [I], [II], and [III].

d. [II] only.

e. [I] and [III] only.

2.

An investor will take as large a position as possible when an equilibrium-price relationship is violated. This is an example of:

Select one:

a. a risk-free arbitrage.

b. the capital asset pricing model.

c. a dominance argument.

d. the mean-variance optimization.

e. speculative margin trading.