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In a simple CAPM world which of the following statements is (are) correct? I. All investors...

In a simple CAPM world which of the following statements is (are) correct?

I. All investors will choose to hold the portfolio which includes all riskless assets in the world.
II. Investors will choose the same portfolio even if their levels of risk aversion are different.
III. The return per unit of risk will be different for different individual assets.
IV. The market portfolio will be on the efficient frontier, and it will be the optimal risky portfolio.

A. I, II, III, and IV
B. IV only
C. I and III only
D. I and IV only
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Answer #1

In a simple CAPM world, the correct statements are following-

I. All investors will choose to hold the portfolio which includes all riskless assets in the world.

IV. The market portfolio will be on the efficient frontier, and it will be the optimal risky portfolio.

Therefore correct answer is option: D. I and IV only

Other two statements are not correct as

  • Investors will choose the different portfolio, if their levels of risk aversion are different.
  • The return per unit of risk will be identical for all individual assets in the portfolio.
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