Question

The Capital Asset Pricing Model requires each of these assumptions except that investors...

a. are equally risk averse or risk tolerant, on average

b. all have the same beliefs about available investments, their future returns and levels of risk

c. have only a one-period investment horizon.

d. do not make any impact on prices when they sell or buy risky assets

Answer 1

The correct option is option A,rest all the options are relevant except option A because as per the assumption of CAPM, all investors are risk averse and hence they shall only invest in diversified portfolios as the risk is low in diversified portfolios. All the investors have access to the same information about assets , all investors have the same time horizon and investors are market takers and not market makers , buying or sellng of assets by them does not make any difference to the prices of the assets.