The separation theorem for the CAPM includes
A) each investor must separate his desired return from his risk.
B) every investor will invest in the same risky portfolio.
C) each investor's indifference curve will determine his risk portfolio.
D) security risk is considered before returns are analyzed.

Question

Quizplus · Accepted Answer

The separation theorem in the Capital Asset Pricing Model (CAPM) posits that all investors will choose to invest in the same portfolio of risky assets, the market portfolio, regardless of their individual risk aversion. This is because the market portfolio is considered to be optimally diversified.

The Separation Theorem for the CAPM Includes