You are given the following historical annual returns for Octatronix Ltd and for the stock market index

Question:

You are given the following historical annual returns for Octatronix Ltd and for the stock market index for the last 5 years:

The risk free rate is 4%. On average, brokers are forecasting a 12% return for the stock market for the coming year.
Perform following tasks
(a) Compute Octatronix€™s equity beta and use this figure in the Capital Asset Pricing Model to estimate the expected return on Octatronix€™s share for the coming year.
Explain the meaning of beta as a measure of risk.
c) CAPM model has come under attack as it assumes that there is only one factor influencing returns on securities. How does the Arbitrage Pricing Theory (APT) resolve the saidlimitation?

Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...