Use the Following Information to Answer the Question(s)below

question 29

Multiple Choice

Use the following information to answer the question(s) below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio) : growth stocks and value stocks.Assume that these two portfolios are equal in size (market value) ,the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics: The risk free rate is 3.5%.
-Which of the following is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM) ?

• A)Investors have homogeneous expectations regarding the volatilities,correlation,and expected returns of securities.
• B)Investors have homogeneous risk adverse preferences toward taking on risk.
• C)Investors hold only efficient portfolios of traded securities,that is portfolios that yield the maximum expected return for the given level of volatility.
• D)Investors can buy and sell all securities at competitive market prices without incurring taxes or transactions cost and can borrow and lend at the risk-free interest rate.

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Definitions:

Narcissism

A personality trait characterized by an inflated sense of one's importance, a deep need for excessive attention and admiration, and a lack of empathy for others.

Positive Self-esteem

The feeling of holding oneself in high regard, characterized by confidence and satisfaction in one's own abilities and worth.

Defensive Self-esteem

A form of self-esteem that is fragile and dependent on external validation or success.

Self-serving Bias

The common tendency to attribute one's successes to personal characteristics and failures to external factors.