All of the following are assumptions of the Capital Asset Pricing Model (CAPM) EXCEPT
A) investors can borrow and lend any amount at the risk-free rate.
B) investors all have homogeneous expectations regarding expected returns.
C) investors can have different time horizons, daily, weekly, annual, or some other period.
D) all investments are infinitely divisible.
E) capital markets are in equilibrium.

Question

Quizplus · Accepted Answer

The CAPM assumes that investors have homogeneous expectations regarding expected returns, that investments are infinitely divisible, that capital markets are in equilibrium, and that investors can borrow and lend any amount at the risk-free rate. However, it does not assume that all investors have the same time horizon. In fact, the CAPM is often used to estimate expected returns for a specific time horizon, such as a one-year period, regardless of the individual investor's time horizon.

All of the Following Are Assumptions of the Capital Asset