6 Questions
The CAPM is a multi-period model, allowing investors to make different decisions over different time horizons?
False
The CAPM is defined by random variables that are uniformly distributed?
False
According to the CAPM, systemic risk is prescribed entirely by one factor known as the alpha factor?
False
Markowitz mean-variance efficiency criteria do not play a role in determining the optimum portfolio in the CAPM?
False
Transaction costs are considered zero in the perfect capital market assumed by the CAPM?
True
All investors in the CAPM are assumed to be risk seeking?
False
Study Notes
CAPM Assumptions and Characteristics
- The CAPM is a multi-period model, allowing investors to make different decisions over different time horizons.
- The CAPM is not defined by random variables that are uniformly distributed.
- Systemic risk is not prescribed entirely by one factor known as the alpha factor in the CAPM; instead, it is represented by beta.
- Markowitz mean-variance efficiency criteria play a crucial role in determining the optimum portfolio in the CAPM.
- Transaction costs are assumed to be zero in the perfect capital market assumed by the CAPM, which implies frictionless markets.
- All investors in the CAPM are assumed to be risk-averse, not risk-seeking.
Test your knowledge of the Capital Asset Pricing Model (CAPM) and Markowitz mean-variance efficiency criteria. This quiz covers concepts such as single-period model, expected returns, systemic risk, beta factor, and normal distribution of random variables.
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