Discuss the similarities and the differences between the CAPM and the APT with regard to the...
Discuss the similarities and the differences between the CAPM and the APT with regard to the following factors: capital market equilibrium, assumptions about risk aversion, risk-return dominance, and the number of investors required to restore equilibrium.
Homework Answers
| Factor | CAPM | APT |
| Capital market equilibrium | It uses specific factors like, Market return,Beta of stock, Risk free rate of return to determined Expected return of stock or portfolio. | APT does not use specific factors of stock. |
| Risk aversion Assumption | Investor are rational and they cannot influence price | Investor are risk taker and they can influence the price |
| Risk return Dominance | invetor are preferref to take low risk, so return is low | Investor prefer to take risk, so high return dominance |
| Number of investor | Large | Small |
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