9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT is more restrictive than the Capital Asset Pricing Model (CAPM). The APT assumes that all investors hold the market portfolio The APT does not identify the relevant factors. The APT does not restrict the number or nature of the factors relevant to the determination of a stock's return. Karine, an analyst at Graffiti Aviation (GA), models the company's stock assuming that all stocks' returns depend on only three risk factors: inflation, industrial production, and the aggregate degree of risk aversion. The risk-free rate is ref = 8%, the return on the market is rm = 10%, and the rest of the available data is given in the following table: Variable Value The required rate of return on an inflation portfolio, The required return on an industrial production portfolio, 12 The required return on a risk-bearing portfolio, Factor sensitivity to the inflation portfolio, bi Factor sensitivity to the industrial production portfolio, b2 Factor sensitivity to the risk-bearing portfolio, by Graffiti Aviation's beta, GA 8% 12% 5% -0.5 0.4 2.0 Using the APT model, Karine calculates that GA's required rate of return is If Karine used the Capital Asset Pricing Model, she would have calculated that GA's required rate of return is Karine, an analyst at Graffiti Aviation (GA), models the company's stock assuming that all stocks' returns depend on only three risk factors: inflati industrial production, and the aggregate degree of risk aversion. The risk-free rate is FRF = 8%, the return on the market is ry - 10%, and there of the available data is given in the following table: Variable Value 8% The required rate of return on an inflation portfolio, The required return on an industrial production portfolio, 2 The required return on a risk-bearing portfolio, 12% 5% Factor sensitivity to the inflation portfolio, bi -0.5 17.00% Factor sensitivity to the industrial production portfolio, b2 Factor sensitivity to the risk bearing portfolio, by Graffiti Aviation's beta, GA 12.00% 6.30% 9.00% Using the APT model, Karine calculates that GA's required rate of return is If Karine used the Capital Asset Pricing Model, she would have calculated that GA's required rate of return is Karine, an analyst at Graffiti Aviation (GA), models the company's stock assuming that all stocks' returns depend on only three risk factors: Inflation, industrial production, and the aggregate degree of risk aversion. The risk-free rate is FRF = 8%, the return on the market is r = 10%, and the rest of the available data is given in the following table: Variable Value 8% The required rate of return on an inflation portfolio, The required return on an industrial production portfolio, The required return on a risk-bearing portfolio, Factor sensitivity to the inflation portfolio, bi Factor sensitivity to the industrial production portfolio, by Factor sensitivity to the risk-bearing portfolio, by Graffiti Aviation's beta, GA 12% 5% -0.5 0.4 2.0 12.00% -4.00% -12.00% Using the APT model, Karine calculates that GA's required rate of return is 6.30% If Karine used the Capital Asset Pricing Model, she would have calculated that GA's required rate of return is