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Arbitrage Pricing Theory Model (APTM) | CA Final SFM
This model believes that the risk factor is not singular i.e., to say there are multiple risk factors which must be factored for determining expected rate of return. These risk factors can arise due to inflation rate, interest rate, GDP, Foreign Exchange Fluctuation, Government Policies, etc. The risk of each factor is expressed by its β and based on β of various risk factors, an overall risk premium is determined and added to the risk free rate. The obtained result is the expected rate of return as per Arbitrage Pricing Theory Model (APTM).
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