An assumption of the capital asset pricing model is that investors can borrow or lend an unlimited amount of funds at a given risk-free rate.

Question

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This assumption is a key assumption of the CAPM. It assumes that investors can borrow or lend unlimited funds at a risk-free rate, without any transaction costs and that this is the same risk-free rate that all investors have access to. This is necessary to establish a benchmark against which to compare the expected return of risky assets.

An Assumption of the Capital Asset Pricing Model Is That