Capital Asset Pricing Model (CAPM)

Question 1

Assumptions

Answer 1

1 - all investors have same expectations about ER

2 - all investors have same 1-period time horizon

3 - all investors can borrow or lend money at the RF

4 - no transaction costs

5 - no personal income taxes

6 - Investors are price-takers: many investors, no single one can affect price of stock through their buying decisions

7 - capital markets are in equilibrium