Asked by Ashley Combs on Jun 23, 2024
Verified
The capital asset pricing model assumes
A) all investors are price takers.
B) all investors have the same holding period.
C) investors pay taxes on capital gains.
D) all investors are price takers and have the same holding period.
E) all investors are price takers, have the same holding period, and pay taxes on capital gains.
Price Takers
Parties in a market who accept prevailing prices because they have no power to influence the market price due to their small scale of operations or the competitive nature of the market.
Capital Gains
The amount by which the sale price of a security exceeds the purchase price.
- Acquire a thorough understanding of the Capital Asset Pricing Model (CAPM) along with its foundational assumptions.
Verified Answer
NG
Nardia GreenwoodJun 26, 2024
Final Answer :
D
Explanation :
The Capital Asset Pricing Model (CAPM) assumes that all investors are price takers (meaning they accept the market price as given and cannot influence it) and that they all have the same holding period for their investments. This simplifies the model and allows for the derivation of a security's expected return given its risk relative to the market.
Learning Objectives
- Acquire a thorough understanding of the Capital Asset Pricing Model (CAPM) along with its foundational assumptions.