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Arbitrage Pricing Theory (APT) differs from CAPM in that APT:
AAllows multiple macro-factor exposures to explain returns
BUses only a single market factor
CDoes not allow for risk-free borrowing
DAlways produces a higher expected return than CAPM
Answer & Solution
Correct answer: A. Allows multiple macro-factor exposures to explain returns
1. Identify what the question asks: this concept maps to apt (§8).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (A).
_Source: ICAI BoS CA Final Paper 2, Ch 6 "Portfolio Management"_
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