Question

Using Walmart as an example, argue in favor of using one pricing model other than CAPM to calculate the discount rate, such as APT, Fama French, and Carhart. Why did you choose this model? Explicitly list the risk factors you would include. (For example: GDP changes, energy prices, etc.)

Answer 1

I will be choosing arbitrage pricing theory as a model in order to arrive at one pricing model because this model is perfectly considering in effect of factors on the risk of the company and expected return of the company and arbitrage pricing theory will also be accounting into the unleveraged beta and it would be appropriately accounting for the systematic risk which is involved with the company.

I choose the arbitrage pricing theory because it is appropriately discounting the the risk factors and it is also making an adjustment for the same.when it comes to inclusion of the risk factors, I would be looking for mostly macro risk because those will be systematic risk that the company cannot control like inflation,interest rate, political instability, gross domestic changes, monetary policies of the economy etc.