Identification of anticipated changes in production, inflation, and term structure of interest rates…

The feature of arbitrage pricing theory (APT) that offers the greatest potential advantage over the simple CAPM is the:

a. Identification of anticipated changes in production, inflation, and term structure of interest rates as key factors explaining the risk–return relationship.

b. Superior measurement of the risk-free rate of return over historical time periods.

c. Variability of coefficients of sensitivity to the APT factors for a given asset over time.

d. Use of several factors instead of a single market index to explain the risk–return relationship.

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