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:

Accounts Payable Turnover

A financial ratio that measures the rate at which a company pays off its suppliers by comparing net purchases to average accounts payable during a period.

Accounts Receivable Period

The Accounts Receivable Period is the average number of days it takes for a business to receive payments from its customers for goods or services sold on credit.

Accounts Receivable

Receivables from customers for goods or services provided but not yet compensated.

Effective Annual Interest Rate

The interest rate on a loan or financial product restated from the nominal rate as an annual rate that reflects compounding over a given period.