Question: CAPM and APT: a . Briefly describe these two models: Capital Asset Pricing Model and Arbitrage Pricing Theory? What are their main assumptions? b .

CAPM and APT:
a. Briefly describe these two models: Capital Asset Pricing Model and Arbitrage Pricing
Theory? What are their main assumptions?
b. CAPM and APT are so-called valuation models. In fact, they permit us to compute the
expected rate of return of a security. How can this be used to derive a current price?
c. Contrast the two models. Are they compatible? Are they identical under certain
conditions?

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