The capital asset pricing model (CAPM)assumes which of the following?
I.a risk-free asset has no systematic risk.
II.beta is a reliable estimate of total risk.
III.the reward-to-risk ratio is constant.
IV.the market rate of return can be approximated.
A)I and III only
B)II and IV only
C)I, III, and IV only
D)II, III, and IV only
E)I, II, III, and IV

Question

Quizplus · Accepted Answer

I, III, and IV are correct assumptions of the CAPM. It assumes a risk-free asset has no systematic risk, the reward-to-risk ratio is constant, and the market rate of return can be approximated. However, CAPM does not assume beta is a reliable estimate of total risk; instead, it considers beta as a measure of systematic risk only, not total risk.

The Capital Asset Pricing Model (CAPM)assumes Which of the Following