Which of the following is not an assumption of Capital Market Theory?
Select one:
a. All Investors are Markowitz Efficient Investors
b. The time horizon is equal for all investors
c. None of the above
d. Investors Borrow/Lend Money at market rate
Solution-
Which of the following is not an assumption of Capital Market Theory?
The correct option is D. Investors Borrow/Lend Money at market rate.
Reason-
Investors can borrow or lend at the risk-free rate of return. It is always possible to lend money at the nominal risk-free rate by buying risk-free securities, such as government T-bills.It is not always possible to borrow at this risk-free rate, but assuming a higher borrowing rate does not change the general results.
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