Economics Homework Help

For this assignment, you will create a compare and contrast chart evaluating the development of the Capital Asset Pricing Model (CAPM) and the zero-beta model. Identify and analyze the different applications to the CAPM, looking at consumption-based CAPM and the zero-beta model where a zero–beta portfolio is constructed to have no systematic risk. Be clear in illustrating how the model can be used to form important expected return measures and in turn valuation measure. Some of the illustrations should be from stock options and restricted stock. Conduct a comparative analysis of the potential outcomes associated and comparative benefits and risks for using the capital asset pricing model (CAPM) verse the arbitrage pricing theory (APT).

In finance, arbitrage pricing theory is a general theory of asset pricing that holds that the expected return of a financial asset can be modeled as a linear function of various factors or theoretical market indices, where sensitivity to changes in each factor is represented by a factor-specific beta coefficient.