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:

List System

A method used in proportional representation electoral systems where parties present lists of candidates and the number of seats won by each party is proportional to the number of votes received.

Political Parties

Are organizations that compete for control of government. In the process, they give voice to policy alternatives and rally adult citizens to vote.

Pluralist

Pluralism is a concept that suggests a diverse, multicultural society where multiple groups maintain their distinctive cultural identities while coexisting with one another, often in a democratic framework.

Elite

A group or class of people considered to be superior in status, power, ability, or wealth in a society or organization.