Use the table for the question(s)below.
Consider the following three individuals portfolios consisting of investments in four stocks:
-Which of the following statements is FALSE?
A)Investors may have different information regarding expected returns,correlations,and volatilities,but they correctly interpret that information and the information contained in market prices and they adjust their estimates of expected returns in a rational way.
B)Investors may learn different information through their own research and observations,but as long as they understand the differences in information and learn from other investors by observing prices,the CAPM conclusions still stand.
C)Every investor,regardless of how much information he has access to,can guarantee himself an alpha of zero by holding the market portfolio.
D)The CAPM requires making the strong assumption of homogeneous expectations.

Question

Use the table for the question(s)below.
Consider the following three individuals portfolios consisting of investments in four stocks: 
-Which of the following statements is FALSE?
A)Investors may have different information regarding expected returns,correlations,and volatilities,but they correctly interpret that information and the information contained in market prices and they adjust their estimates of expected returns in a rational way. 
B)Investors may learn different information through their own research and observations,but as long as they understand the differences in information and learn from other investors by observing prices,the CAPM conclusions still stand. 
C)Every investor,regardless of how much information he has access to,can guarantee himself an alpha of zero by holding the market portfolio. 
D)The CAPM requires making the strong assumption of homogeneous expectations.

Quizplus · Accepted Answer

The CAPM (Capital Asset Pricing Model) indeed assumes that all investors have homogeneous expectations, meaning they all have the same expectations regarding the returns, volatilities, and correlations of all assets. This assumption is considered strong because, in reality, investors often have access to different information and may form different expectations based on that information.

Use the Table for the Question(s)below