Assumption about investors preferences and endowments

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Reference no: EM131517152

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)

Reference no: EM131517152

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