QUESTION $3[30$ MARKS$]$

$($a$)$ Compare and contrast the Capital Asset Pricing Model $($CAPM$)$ to that of the Arbitrage Pricing Theory $($APT$).$

$(10$ marks$)$

$($b$)$Risks in a portfolio, cannot be diversified away$.$ Discuss.

$(10$ marks$)$

$($c$)$ Outline the different forms of Market Efficiency.

$(10$ marks$)$

QUESTION $4[30$ MARKS$]$

$($a$)$ Distinguish between $$Exchange Traded Options$($ETO$$s$)$ and $$Over the Counter$($OTC$$s$).$

$(7$ marks$)$

$($b$)$ Show and explain

$($i$)$ the pay$-$off profile for the call holder.

$(5$ marks$)$

$($ii$)$ the pay$-$off profile for the put writer.

$(5$ marks$)$

$($c$)$ Discuss using an example, how the Black Scholes Options Pricing Model operates.

$(8$ marks$)$

$($d$)$ Discuss whether there is a need for a risk$-$free asset in portfolio diversification.

$(5$ marks$)$