You are the lead manager of a large mutual fund. You have become aware that several equity

Question:

You are the lead manager of a large mutual fund. You have become aware that several equity analysts who have recently joined your management team are interested in understanding the differences between the (CAPM) and arbitrage pricing theory (APT). In particular, they are interested in how these two asset pricing models can help them perform better security analysis.
a. Explain what the CAPM and APT attempt to model. What are the main differences between these two asset pricing models?
b. Under what circumstances would the APT be preferred over the CAPM as a tool for selecting for the fund portfolio? Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its...