What are the most important assumptions of the Capital Asset Pricing Model (CAPM)? Explain with examples.

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What are the most important assumptions of the Capital Asset Pricing Model (CAPM)? Explain with examples.

What are the most important assumptions of the Capital Asset Pricing Model (CAPM)?

Explain with examples.

business finance

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Answer 1

Answer #1

CAPM is the most popular tool used to assess the systematic risk and expected return by the investor over a stock.

Here are some assumptions of CAPM as below:

Assumed that investors will have same views and opinions on risk and return of a stock being the same, that is homogeneous.
Markets are highly efficient and accessible to all the shareholders.
Investors are not price makers but price takers.
Assets are liquid.
All investors are risk averse.
Markets are idealistic by not charging any transactional fees and taxes.

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Answer 2

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