Which of the following is not an assumption of the capital asset pricing model (CAPM)?
A) Capital markets are in equilibrium.
B) Transaction costs are the same for all investors.
C) All investors can borrow or lend money at the risk-free rate of return.
D) All investors have identical expectations about expected returns, standard deviations, and correlation coefficients for all securities.

Question

Quizplus · Accepted Answer

The capital asset pricing model (CAPM) assumes that there are no transaction costs or taxes, which is different from assuming transaction costs are the same for all investors. The other options (A, C, D) are indeed assumptions of the CAPM.

Which of the Following Is Not an Assumption of the Capital