Question

According to the Arbitrage Pricing Theory Model, what are the four factors that explain the risk premium relationship of a particular security?

a.

Risk-free rate, market rate, inflation, and interest rate

b.

Inflation and money supply, interest rate, industrial production, and personal consumption

c.

Beta values, market rate, inflation, and risk-free rate

d.

Industrial production, market rate, personal consumption, and risk-free rate

Answer: (b).Inflation and money supply, interest rate, industrial production, and personal consumption Explanation:According to the Arbitrage Pricing Theory Model, the four factors explaining the risk premium relationship are inflation and money supply, interest rate, industrial production, and personal consumption.

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Q. According to the Arbitrage Pricing Theory Model, what are the four factors that explain the risk premium relationship of a particular security?

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