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Answer: Investors have the same expectations regarding expected returns, the variance of returns, and the correlation structure between all pairs of stocks.
CAPM assumes investors have identical expectations with respect to expected returns, the variance of returns, and the correlation matrix representing the correlation structure between all pairs of stocks. The other choices are not assumptions of the CAPM.
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A
There are transaction costs associated with buying and selling assets.
B
An individual investor can affect the price of a stock by buying or selling stocks.
C
Investors should consider their personal income taxes in making investment decisions.
D
Investors have the same expectations regarding expected returns, the variance of returns, and the correlation structure between all pairs of stocks.
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