Explanation:
Let's examine each option against CAPM assumptions:
A. There are transaction costs associated with buying and selling assets. - NOT a CAPM assumption
B. An individual investor can affect the price of a stock by buying or selling that stock. - NOT a CAPM assumption
C. Investors make their investment decisions by taking into account their personal income taxes. - NOT a CAPM assumption
D. Investors have the same expectations regarding the expected returns and the variance of returns of all assets. - CAPM ASSUMPTION
Therefore, the correct answer is D.
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A risk consultant is advising a pension fund to revise its asset allocation approach to be more consistent with the theory of CAPM. The consultant prepares a list of the assumptions of CAPM to support the advice. Which of the following is an assumption of CAPM?
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 that stock.
C
Investors make their investment decisions by taking into account their personal income taxes.
D
Investors have the same expectations regarding the expected returns and the variance of returns of all assets.
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