Question 11 2.5 pts APM - Which is True about the APM? The APM is essentially a utility based valuation model that posits a linear relationship between the returns of an asset and the market risk premium. The APM is essentially a utility based valuation model that posits a linear relationship between the returns of an asset and changes in an unknown number of unknown economic factors. The APM is essentially an arbitrage based valuation model that posits a relationship between the returns of an asset and only the market risk premium. The APM is essentially an arbitrage based valuation model that posits a relationship between the returns of an asset and the returns or values of a set of unknown economic factors Question 12 2.5 pts If the stock of BBB corp. has a beta of 1.0 and the stock of CCC corp. has a beta of 1.8 and we combine the two stocks into a portfolio with 50% invested in BBB and 50% invested in CCC, the beta of the portfolio will be 1.2 14 1.6 18 cannot calculate with given information > Question 13 Which are APM assumptions or characteristics? Investors have a particular utility function A single economic factor determines the risk premium for asset returns Markets are perfect Investors are well diversified Systematic Risk is only relevant risk All of the above none of the above Question 14 2. Return Pricing Models - Which of the following is False? The APM is a more general model than the CAPM The CAPM is a single factor model The CAPM theory does not state what the best proxy variable for a risk-free rate is The APM model, when used in an empirical process to estimate sensitivities, can only capture systematic risk factors None of the above are false