Scribd
Upload
37 views1 page

Assumption of Capm

The Capital Asset Pricing Model (CAPM) assumes investors are risk-averse and make investment decisions based on expected risk and return, and that all investors have homogeneous expectations and free access to information.

Uploaded by

Vitthal Sawant.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
37 views1 page

Assumption of Capm

The Capital Asset Pricing Model (CAPM) assumes investors are risk-averse and make investment decisions based on expected risk and return, and that all investors have homogeneous expectations and free access to information.

Uploaded by

Vitthal Sawant.
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 1

Powered by AI

Bing

The Capital Asset Pricing Model (CAPM) is based on several key assumptions:

1. Risk-Averse Investors: CAPM assumes that investors are risk-averse, meaning they prefer less risk to more
risk for a given level of expected return.

2. Investment Decisions Based on Risk and Return: Investors make investment decisions based on the
expected risk and return of their portfolios.

3. Diversification: Investors are assumed to hold diversified portfolios to minimize their exposure to
unsystematic risk.

4. Homogeneous Expectations: All investors have the same expectations of risk and return for any given
investment.

5. Free Access to Information: All investors have free access to all necessary and available information.

6. Risk-Free Rate: There is a risk-free asset, and there is no restriction on borrowing and lending at the risk-
free rate.

7. Linear Relationship between Risk and Reward: The model assumes a linear relationship between the
level of risk and the expected return of an asset.

8. Investors are Price Takers: This means they cannot influence prices.

9. Unlimited Borrowing and Lending: The model assumes that investors can lend and borrow unlimited
amounts under the risk-free rate of interest.

You might also like