Question

Which of the following is not an assumption of Capital Market Theory? Select one: a. All...

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

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Answer #1

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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