Question: Problem 3 CAPM and APT: a. Briefly describe these two models: Capital Asset Pricing Model and Arbitrage Pricing Theory? What are their main assumptions? b.

Problem 3 CAPM and APT: a. Briefly describe these two models:

Problem 3 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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