All of the Following Are Underlying Assumptions of the Capital

question 54

Multiple Choice

All of the following are underlying assumptions of the capital asset pricing model (CAPM) except:

• A) A large number of profit-maximizing participants analyze and value securities.
• B) New information enters the market in a random fashion
• C) Security prices adjust rapidly to reflect the effect of new information
• D) Expected returns implicit in the current price of the security reflect its risk
• E) All of the above are assumptions of the CAPM

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Definitions:

Macroeconomic Theories

Encompass the broad concepts and frameworks used to understand, analyze, and assess the overall behavior of a nation's economy, including factors like inflation, unemployment, and economic growth.

Laffer Curve

A theoretical representation of the relationship between tax rates and tax revenue, suggesting an optimal tax rate for maximizing revenue.

Supply-Side Economics

Main tenets: economic role of federal government is too large; high tax rates and government regulations hurt the incentives of individuals and business firms to produce goods and services.

Systematic Error

refers to a consistent, predictable error present in the results of measurements or experiments due to flaw in the measurement system.