The capital asset pricing model assumes A. all investors are fully informed. B. all investors are rational. C. all investors are mean-variance optimizers. D. taxes are an important consideration. E. all investors are fully informed, are rational, and are mean-variance optimizers.

Question

Bessie

Business

21 January, 17:33

The capital asset pricing model assumes A. all investors are fully informed. B. all investors are rational. C. all investors are mean-variance optimizers. D. taxes are an important consideration. E. all investors are fully informed, are rational, and are mean-variance optimizers.

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Answers (1)

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Leandro · Answer 1

The correct option is E, all investors are fully informed, are rational and are mean-variance optimizers

Explanation:

The Capital Asset Pricing Model is used in analyzing investment opportunities to determine the required rate of return for a given level of risk. The higher the risk the higher the investor's return as a compensation for taking higher risk.

The model assumes that there is free access to information, hence investors are well informed.

They are also rational since they demand for return depending on the risk to be taken.

Finally, they try as much as possible to put invest where it is most profitable, hence they mean-variance optimizers.