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True/False (explain your reasoning): 1. The CAPM predicts that a(alpha) can be zero or positive, but it should never be negative, otherwise the SML is
True/False (explain your reasoning):
1. The CAPM predicts that a(alpha) can be zero or positive, but it should never be negative, otherwise the SML is not well defined;
2. According to Arbitrage Pricing Theory, there cannot be arbitrage if we can construct tracking portfolios with the same loadings of the original securities present in the market;
3. Arbitrage Pricing Theory does not make assumption about investors preferences and endowments;
4. No arbitrage implies that we cannot make profits in the market (legally or illegally)
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