Answer: Investors have the same expectations regarding the expected returns and the variance of returns of all assets.

## Explanation The Capital Asset Pricing Model (CAPM) makes several key assumptions: - **Option A is incorrect**: CAPM assumes there are **no transaction costs** - investors can buy and sell assets without incurring any costs. - **Option B is incorrect**: CAPM assumes that **individual investors cannot affect prices** - all investors are price takers in perfectly competitive markets. - **Option C is incorrect**: CAPM assumes **no taxes** - investment decisions are made without considering personal income tax implications. - **Option D is correct**: This is one of the fundamental assumptions of CAPM - **all investors have homogeneous expectations** regarding expected returns, variances, and covariances of all assets. This means all investors have the same information and interpret it in the same way, leading to identical estimates of expected returns and risk measures. Other key CAPM assumptions include: - All investors are rational and risk-averse - Investors can borrow and lend at the risk-free rate - All assets are perfectly divisible and liquid - There are no restrictions on short selling - Investors plan for the same single holding period

Author: LeetQuiz .