Need help, part (ii) of the question asks us to show that the CAPM can be considered a simplified version of the APT. The Core reading doesn't seem to cover the ''derivation'' and the answer in the examiners report doesn't look obvious either! Has it been removed from CT8, if at all it used to be done there???
This is still a reasonable question for CT8. There's not really a derivation, as such, though. We just note that APT is based on a multifactor model and that CAPM is based on just one factor, ie the return on the market as a whole. To formalise this, we compare the capital market line from CAPM with the general expected return equation for APT and identify what a, b and I must be to get CAPM as a special case.
