Which of the Following Is an Assumption of the Capital

question 12

Multiple Choice

Which of the following is an assumption of the Capital Asset Pricing Model?

• A) Very few investors hold fully diversified portfolios.
• B) The relationship between beta and expected returns are seldom linear.
• C) Returns on specific shares are affected by general market changes only.
• D) Beta values tend to be unstable over the long term.
• E) Historical data can be used to predict the future.

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Definitions:

Adam Smith

An 18th-century economist known for his writings on classical economics, including the concept of the division of labor and the benefits of free markets.

Absolute Advantage

The ability of a country, individual, company, or region to produce a good or service at a lower cost per unit than competitors using the same amount of resources.

Comparative Advantage

An economic theory that suggests a country should produce and export goods in which it has a lower opportunity cost than other countries.