The CAPM Model makes the following assumptions below EXCEPT:
A)Assumes there are no transactional costs.
B)Assumes there are no personal income taxes.
C)Assumes that all investors have different expectations about expected returns, and standard deviations for all traded securities.
D)Assumes that all investors can borrow/lend at the risk-free rate.

Question

Quizplus · Accepted Answer

The CAPM Model assumes that all investors have the same expectations about expected returns and standard deviations for all traded securities. This is known as the assumption of homogeneous expectations. The other three assumptions are correct. The CAPM Model assumes no transactional costs (A), no personal income taxes (B), and that all investors can borrow/lend at the risk-free rate (D).

The CAPM Model Makes the Following Assumptions Below EXCEPT