Asked by Chasity Martin on Jul 13, 2024
Verified
In a simple CAPM world which of the following statements is (are) correct?
I. All investors will choose to hold the market portfolio, which includes all risky assets in the world.
II. Investors' complete portfolio will vary depending on their risk aversion.
III. The return per unit of risk will be identical for all individual assets.
IV. The market portfolio will be on the efficient frontier, and it will be the optimal risky portfolio.
A) I, II, and III only
B) II, III, and IV only
C) I, III, and IV only
D) I, II, III, and IV
Efficient Frontier
A concept in portfolio theory that represents the set of portfolios offering the highest expected return for a given level of risk.
Risk Aversion
A preference for avoiding losses over acquiring equivalent gains, indicating a behavior that leans towards avoiding risk.
Market Portfolio
A theoretical bundle of investments that includes every type of asset available in the market, with each asset weighted according to its total market capitalization.
- Recognize and elucidate the presuppositions foundational to the Capital Asset Pricing Model (CAPM) and their consequences.
- Outline the application in practice and the limitations of the Capital Asset Pricing Model when making decisions in finance.
Verified Answer
Learning Objectives
- Recognize and elucidate the presuppositions foundational to the Capital Asset Pricing Model (CAPM) and their consequences.
- Outline the application in practice and the limitations of the Capital Asset Pricing Model when making decisions in finance.
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