Even Though Many of the CAPM Assumptions Are Violated in the Real

question 41

Multiple Choice

Even though many of the CAPM assumptions are violated in the real world which of the following provides a reason to use the model in investment decisions?

• A) The model helps to understand and to predict the investment process.
• B) It is only the secondary conclusions of the CAPM that are violated in the real world.
• C) Most investors are able to borrow as well as lend at the risk free rate of interest.
• D) It is still reasonable to assume most investors will prefer portfolios with lower standard deviations.

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Definitions:

Sample Size

Sample size refers to the number of observations or participants included in a statistical sample.

Critical Value

A threshold value that separates probable values from improbable values for a test statistic, under a specified significance level.

Region of Non-rejection

An area in hypothesis testing where the data does not provide sufficient evidence to reject the null hypothesis.

Statistic

A quantitative measure derived from a sample of data used to summarize or describe aspects of that data.