Which of the following is not considered a difficulty with regards to the CAPM?
A) Betas are not observed.
B) Expected returns are not observed.
C) The market proxy is not correct.
D) Investors risk preferences are not observed.

Question

Quizplus · Accepted Answer

The investors' risk preferences are not considered a difficulty with regards to the CAPM because it assumes that all investors have the same risk aversion and preferences, and therefore their risk preferences do not affect the model. The other options (A, B, and C) are considered difficulties because they assume certain conditions that may not exist in reality, such as the availability of accurate beta estimates or an appropriate market proxy.

Which of the Following Is Not Considered a Difficulty with Regards