Question

In a simple CAPM world, which of the following statements is/are correct?

I. All investors will choose to hold the market portfolio, which includes all risky assets in the world
II. Investors' complete portfolio will vary depending on their risk aversion
III. The return per unit of risk will be identical for all individual assets
IV. The market portfolio will be on the efficient frontier and it will be the optimal risky portfolio
a. I, II and III only
b. I, II, III and IV
c. II, III and IV only
d. II and IV only
e. I, III and IV only

Answer 1

Answer: I, II, III, IV

Step-by-step explanation:

CAPM is used for pricing of risky securities and also for the generation of expected returns for an asset given the risk involved with regards the assets and the cost of capital

In a simple CAPM world, the correct statements are:

I. All investors will choose to hold the market portfolio, which includes all risky assets in the world

II. Investors' complete portfolio will vary depending on their risk aversion

III. The return per unit of risk will be identical for all individual assets

IV. The market portfolio will be on the efficient frontier and it will be the optimal risky portfolio

Therefore, I, II, III, IV is the best option.