"Major Assumptions: i. All investors are Markowitz efficient investors who want to target points on the efficient frontier. ii. Investors can borrow or lend any amount of money at the risk-free rate of return (RFR). iii. All investors have homogeneous expectations; that is, they estimate identical probability distributions for future rates of return. iv. All investors have the same one-period time horizon such as one-month, six months, or one year. v. All investments are infinitely divisible, which means that it is possible to buy or sell fractional shares of any asset or portfolio. vi. There are no taxes or transaction costs involved in buying or selling assets. vii. There is no inflation or any change in interest rates, or inflation is fully anticipated. viii. Capital markets are in equilibrium. This means that we begin with all investments properly priced in line with their risk levels. Source: http://in.docsity.com/en-docs/Capital_Market_Theory_-_Security_Analysis_and_Portfolio_Management_-_Solved_Quiz_"
Add a comment
"As explained by Investopedia, the CPAM states that the expected return of a portfolio or a security equals the rate on a risk free security added to a risk premium. If, in any case, this expected return does not congregate the required return, the investment should not be undertaken. The security market line plots the results of the CAPM for all individual risks. "
Add a comment
to see other 5 answers