Question

1. the behavioral asset pricing model (bapm) was designed to address which limitation of the capm?

a. ignoring transaction costs
b. assuming investor rationality
c. using multiple risk factors
d. neglecting inflation expectations

1. the fama-french three-factor model includes which additional factors beyond the market risk premium?

a. size and value
b. momentum and profitability
c. liquidity and inflation
d. interest rate and leverage

Explanation:

• Question 15: The Capital - Asset Pricing Model (CAPM) assumes that investors are rational. The Behavioral Asset Pricing Model (BAPM) incorporates behavioral finance concepts, such as investor irrationality (e.g., cognitive biases).
• Question 16: The Fama - French Three - Factor Model includes the market risk premium, a size factor (small - cap vs. large - cap stocks), and a value factor (high - book - to - market vs. low - book - to - market stocks).

Answer:

1. B. Assuming investor rationality
2. A. Size and Value