Explanation:
The capital asset pricing model (CAPM) assumes the following:
(Book 1, Module 5.2, LO 5.c)
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Question 89
A portfolio strategist is analyzing a publicly traded firm and is using the company's beta, the risk-free rate of return, and the expected return on the market to estimate the company's required rate of return. He is somewhat concerned that the underlying assumptions of this technique are not realistic. Which of the following statements is an assumption of the capital asset pricing model (CAPM)?
A
Investors minimize their expected utility of wealth at the end of the period.
B
Investors are risk-neutral.
C
Investors are concerned only with the mean and standard deviation of returns.
D
Assets are not divisible.
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