CAMP assumptions

Question 1

What does it mean that investors are risk-averse in the CAPM model?

Answer 1

Investors prefer to minimize risk while seeking returns, choosing the least risky options available.

Question 2

What does CAPM assume about borrowing and lending?

Answer 2

Investors can borrow or lend unlimited amounts at a risk-free rate, providing a baseline for risk assessment

Question 3

How do CAPM assumptions regard investors’ expectations?

Answer 3

How do CAPM assumptions regard investors’ expectations?

Question 4

What does CAPM say about the divisibility and liquidity of assets?

Answer 4

Assets are perfectly divisible and liquid, meaning they can be bought or sold instantly without price impacts.

Question 5

What market conditions does CAPM assume regarding taxes and transaction costs?

Answer 5

What market conditions does CAPM assume regarding taxes and transaction costs?

Question 6

Are CAPM investors considered price setters or price takers?

Answer 6

Investors are price takers and accept market prices as given.

Question 7

What does CAPM assume about the availability of market information?

Answer 7

All market information is freely and instantly available to all investors