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A portfolio manager at an investment management firm is developing a new portfolio strategy which incorporates various asset classes. The manager considers using both the arbitrage pricing theory (APT) model and the capital asset pricing model (CAPM) to analyze both the systematic and specific risks with these assets. Which of the following statements will the manager find to be correct about the given theory?
A
The CAPM assumes that all investors will make identical assumptions on the volatility and expected return of all available assets.
B
The APT describes an asset's return as having a nonlinear relationship with several market factors.
C
The APT assumes that investors are risk averse, while the CAPM does not.
D
Neither the APT nor the CAPM captures idiosyncratic risk that is not reflected in a factor exposure.