Question

The capital market pricing model assumes that the markets are frictionless. This implies that: A) Assets...

The capital market pricing model assumes that the markets are frictionless. This
implies that:
A) Assets are tradeable at any price and in any quantity and no individual can affect the price.
B) There are no restrictions on short-selling, or other regulations that would affect the
ability to transact.
C) Both A and B are correct.
D) None of the above.

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Answer #1

B) There are no restrictions on short-selling, or other regulations that would affect the
ability to transact.

The CAPM market portfolio short selling allowed or not. Short selling only holds for individual it is not allowed and market as a whole it is allowed.Here the assumption is market are frictionless so, option A is correct.

One of the CAPM assumption is  Markets are in equilibrium.That is investors are price taker not price makers so, the first option Assets are tradeable at any price and in any quantity and no individual can affect the price is not correct.

It clear that option B is only correct.

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