Which of the Following Is Not an Assumption Used in Deriving

question 109

Multiple Choice

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 are 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:

Personal Needs

Basic or psychological requirements necessary for an individual to feel satisfied and function effectively in life.

Diverse Groups

Collections of individuals with varied characteristics such as cultural, racial, gender, and socioeconomic backgrounds.

Mentor

A mentor is an experienced and trusted adviser who provides guidance, support, and wisdom to a less experienced individual, often in a professional or educational context.

Special Peers

Individuals within a group who have distinct skills, qualities, or roles that set them apart from others.