CAPM vs APT. Which model do you think can do a better job explaining rates of...

CAPM vs APT. Which model do you think can do a better job explaining rates of return on risky assets? And why?

Expert Solution

Capital Asset pricing model is known for calculation of expected rate of return which can accrue in a Portfolio so these will be accounting for risk free rate and beta as well as market risk premium.

Arbitrage pricing theory is also used for calculation of different kinds of expected return what Capital Asset pricing model is to be considered as a special case of arbitrage pricing theory as it will be accounting for various kinds of Beta and market risk premium along with risk free rate so it is accommodating all those factors which are prevalent in the market in order to find out a return of the Asset of of portfolio

Capital Asset pricing model is highly precise method in order to find out what will be the rate of return in relation to a particular asset and it is able to generate relation with acid in the respective assignment of a premium and beta

So I will be always using Capital Asset pricing model for finding out rate of return of risky assets.

jeff jeffy answered 1 year ago

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