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 16. 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. Behavioral finance recognizes that investors may not always be rational (e.g., they may be subject to cognitive biases). So, BAPM addresses the limitation of CAPM's assumption of investor rationality.
• Question 16: The Fama - French Three - Factor Model is an extension of the CAPM. In addition to the market risk premium (as in CAPM), it includes two other factors: the size factor (small - cap vs. large - cap stocks) and the value factor (value stocks vs. growth stocks).

Answer:

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