Another assumption of the CAPM is that taxes and transaction costs are
A) critical
B) irrelevant
C) somewhat informative
D) important to calculate the tax effect

Question

Quizplus · Accepted Answer

The CAPM assumes that taxes and transaction costs are irrelevant to the calculation of expected returns and the determination of optimal portfolios. This is because the model assumes that there are no constraints on investors who can borrow and lend at the risk-free rate and trade without any transaction costs. In reality, taxes and transaction costs can affect investment decisions and returns, but the CAPM abstracts from these factors for simplification purposes.

Another Assumption of the CAPM Is That Taxes and Transaction