Assumptions of the Arbitrage Pricing Theory (APT)
The Arbitrage Pricing Theory (APT) relies on several key assumptions. These include:
- 'Unlimited borrowing': The theory assumes investors can borrow unlimited funds at a risk-free rate.
- 'No transaction costs': It assumes that there are no costs associated with buying or selling securities.
- 'Unlimited short selling of stock': The APT assumes that investors can short sell any amount of stock without limitations.
- 'The agent is a small investor ie. her trading will not move the market': The theory assumes that individual investors are small enough that their trades do not impact the overall market prices.
Therefore, the correct answer is 'd. all of them are true.'
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