The Capital Asset Pricing Model (CAPM) includes which of the following in its base assumptions?
I. Investors buying positive beta stocks should earn a minimum return equal to the risk-free rate.
II. Investors in the market should earn a return greater than the return on the overall market.
III. Investors should be rewarded for the amount of risk they assume.
IV. Investors should earn a return located above the Security Market Line.
A) I and III only
B) II and IV only
C) I, II and III only
D) I, III and IV only

Question

Quizplus · Accepted Answer

The Capital Asset Pricing Model (CAPM) assumes that investors buying positive beta stocks should earn a minimum return equal to the risk-free rate (I) and that investors should be rewarded for the amount of risk they assume (III). It does not inherently assume that investors in the market should earn a return greater than the return on the overall market (II) or that investors should earn a return located above the Security Market Line (IV).

The Capital Asset Pricing Model (CAPM) Includes Which of the Following