Question

The capital asset pricing theory is based on the premise that: only unsystematic variability in cash...

The capital asset pricing theory is based on the premise that:

only unsystematic variability in cash flows is relevant.

neither systematic nor unsystematic variability in cash flows is relevant.

both systematic and unsystematic variability in cash flows are relevant.

none of the above.

Homework Answers

Answer #1

Option D is correct: none of the above.

The capital asset pricing theory is based on the premise that only systematic variability in cash flows is relevant. We do not have this as one of our answer choices.

Option A is incorrect because the unsystematic variability is not relevant because the investors are assumed to be diversified

Option B is incorrect because the capital asset pricing theory considers systematic vatiability as relevant

Option C is incorrect because only systematic variability in cash flows is relevant and unsystematic risk is not relevant

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