2 \"U3 \"U11 '1 (a) (b) Shelley Lask, CFA, uses the capital asset pricing model (CAPM) to help identify mispriced securities. A consultant suggests Miss Lask use the arbitrage pricing theory (APT) instead. In comparing the CAPM and APT, the consultant made the following arguments: (i) Both CAPM and the APT require meanvariance efficient market portfolios. (i) Neither the CAPM nor the APT assumes normally distributed security returns. (ii) The CAPM assumes that one specic factor explains security returns, but the APT does not. Evaluate whether each of the consultant's arguments is correct or incorrect. Examine, for each incorrect argument, why the argument is incorrect. Suppose you are studying the performance and investment style of ABC mutual fund. As part of your analysis, you regress ABC's monthly returns for the past ve years against the three factors specied in the 3Factor FamaFrench models. This procedure generate the following coefcient estimates market factor MKT = 1.1, SMB factor = 1.4, HML factor = 0.3. Explain what each of these coefcient values means. What types of stocks is ABC mutual fund likely to be holding? (2+2+2+6=12marks)