Which of the Following Is NOT an Assumption Used in Deriving

question 32

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 averse 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 costs and can borrow and lend at the risk-free interest rate.

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Definitions:

Venture Capitalists

Investors who provide capital to start-ups or early-stage companies with high growth potential in exchange for equity stakes.

Debt Financing

The act of borrowing funds from external sources, such as banks, to finance an entity's operations or growth.

Equity Financing

The process of raising capital through the sale of shares in an enterprise, thus offering investors ownership interests.

Initial Public Offering

An initial selling of shares to the public at large.