Financial Risk Manager Part 1
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Which of the following is a correct interpretation of in the Arbitrage Pricing Theory (APT) formula?
A
It is a coefficient measuring the effect of changes in the rate of return of security k on the expected value of factor l.
B
It measures the difference between the observed and expected values of factor k.
C
It measures the idiosyncratic random shock to the price of security i which has a mean of zero.
D
It measures how the changes in the surprise factor k will affect the rate of return of security i.