After reflecting on theory and application of the CAPM model and reviewing the prior work on the Constant Dividend Growth Model post a one paragraph response to the following questions:

Question 1

What are the primary advantages and disadvantages of the Capital Asset Pricing Model (CAPM) compared with the Constant Dividend Growth Model for use in pricing common stock?

Question 2

Can either or both of these two models be used to price the stock of Gamma Inc., a non-publicly traded company that does not pay dividends? Explain your answer.

Question 3

Why is it that the financial models for calculating the price of a stock cannot be reliably used to make day to day investment decisions in the stock market?