A variety of empirical testing of the Capital Asset Pricing Model (CAPM) has resulted in the model being described as fatally flawed for a number of reasons. Its predictions about security returns do not always hold true in reality. As a result, alternative models of the CAPM have been developed. These include the Three Factor Model, Arbitrage Pricing Theory and the Inter temporal CAPM (ICAPM).

a) Critically discuss the flaws or weaknesses identified by research of the CAPM. b) Briefly compare the following three alternative pricing models with the CAPM: i. Three Factor Model ii. Arbitrage Pricing Theory iii. ICAPM.