The main shortcoming of the CAPM is that it:
A)ignores the return on the market portfolio.
B)uses too many factors.
C)requires only a single measure of systematic risk.
D)ignores the risk-free rate of return.

Question

Quizplus · Accepted Answer

The main shortcoming of CAPM is that it only requires a single measure of systematic risk, which is represented by beta. This oversimplification can lead to inaccurate valuation and predictions of asset returns, as other factors such as liquidity and size may also affect returns. Ignoring the return on the market portfolio and the risk-free rate of return are also potential limitations, but they are not the main shortcoming of the CAPM. Using too many factors would violate the principle of simplicity and may not improve the accuracy of the model.

The Main Shortcoming of the CAPM Is That It