Distinguish between capital asset pricing model and arbitrage pricing model
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ARBITRAGE PRICING MODEL:
Arbitrage pricing model is a general model 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.
CAPITAL ASSET PRICING MODEL:
It is used to determine a theoretically appropriate required rate of return of an asset.
It is used to make decisions about adding assets to a well diversified portfolio.
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