Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)?
A)Investors have homogeneous expectations regarding the volatilities,correlation,and expected returns of securities.
B)Investors have homogeneous risk-averse preferences toward taking on risk.
C)Investors hold only efficient portfolios of traded securities,that is portfolios that yield the maximum expected return for the given level of volatility.
D)Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate.

Question

Quizplus · Accepted Answer

The CAPM assumes that investors have homogeneous expectations, but it does not assume that they have homogeneous risk-averse preferences. Instead, it assumes that all investors are risk-averse but does not specify that their degree of risk aversion is the same.

Which of the Following Is NOT an Assumption Used in Deriving