The Capital Asset Pricing Model (CAPM) is a foundational concept in finance that seeks to explain the relationship between the expected return of an investment and its risk. One of the key assumptions of CAPM is crucial for its application and understanding. What is this fundamental assumption?

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There are transaction costs associated with buying and selling assets.

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An individual investor can affect the price of a stock by buying or selling stocks.

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Investors should consider their personal income taxes in making investment decisions.

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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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Financial Risk Manager Part 1