Question

The Capital Asset Pricing Model assumes:

a) All investors have the same holding period.

b) Only risk-averse investors exist.

c) Perfect competition in the financial markets.

d) Predictable future market conditions.

Answer 1

The Capital Asset Pricing Model assumes that all investors have the same holding period, only risk-averse investors exist, perfect competition in the financial markets, and predictable future market conditions.

Step-by-step explanation:

The Capital Asset Pricing Model (CAPM) assumes several factors:

1. All investors have the same holding period.
2. Only risk-averse investors exist.
3. Perfect competition in the financial markets.
4. Predictable future market conditions.

These assumptions are made to simplify the model and provide a framework for understanding the relationship between risk and return. By assuming that all investors have the same holding period, risk-averse, and that markets are perfectly competitive, the CAPM can estimate an asset's expected return based on its systematic risk (beta) and the overall market's return.

It's important to note that these assumptions may not hold in the real world, and the CAPM is just one approach to pricing assets.