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.

---

Definitions:

After-Tax Income

The amount of income that remains for an individual or a business after all federal, state, and withholding taxes have been deducted from taxable income.