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Short questions: a. Discuss four CAPM assumptions and why they may fail. b. Explain the assumption of no-arbitrage and the law of one price. How

Short questions:

a. Discuss four CAPM assumptions and why they may fail.

b. Explain the assumption of no-arbitrage and the law of one price. How does the principle of no-arbitrage can be used in relative pricing?

c. What are the main differences between the CAPM and the APT?

d. Discuss the different methods to select factors in the APT.

e. Explain the Fama-French 3-factor model.

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