Question: 2. a) Consider the Single Index Model. Discuss and explain the assumptions, main results, empirical applications, and the issue on estimating beta. [10 marks]

2. a) Consider the Single Index Model. Discuss and explain the assumptions,

2. a) Consider the Single Index Model. Discuss and explain the assumptions, main results, empirical applications, and the issue on estimating beta. [10 marks] b) Consider the Capital Asset Pricing Model (CAPM). Briefly explain the difference between beta as a measure of risk and variance as a measure of risk. [5 marks] c) Consider the Arbitrage Pricing model (APT) - multifactor model. Discuss and explain the assumptions, the pricing equation, how investors can exploit riskless arbitrage opportunities, and empirical examples of indexes. [10 marks]

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Single Index Model CAPM and APT 2 a Single Index Model The Single Index Model SIM is a foundational model used in asset pricing to explain the relationship between an individual securitys return and t... View full answer

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