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| Davidson is familiar with the use of the capital asset pricing model (CAPM) and arbitrage pricing theory (APT) to estimate the required rate of return for an equity investment. However, there are some limitations associated with both models that should be considered in her analysis. Which of the following is least likely a limitation of the CAPM and/or APT? A. Model uncertainty, because it is unknown if the use of either model is theoretically correct and appropriate. B. Risk premium exposure, because it fails to consider the implications of an asset’s sensitivity to the various risk factors in the market. C. Input uncertainty, because it is difficult to estimate the appropriate risk premiums accurately. |